T. Glennon, Inc. (“TGI”) sued its excess insurance carrier, the Hartford Casualty Insurance Company (“Hartford”), for attorneys fees incurred in its lawsuit brought to determine coverage for an intentional wrong employee workplace personal injury suit filed against TGI. In Johnson v. Plasser American Corp., 2014 N.J. Super. Unpub. LEXIS 372 (App.Div. 2014), TGI argued that, as a result of Hartford’s contribution to the settlement, it was a “successful claimant” in a lawsuit on an indemnity policy and, hence, entitled to fees under New Jersey Court Rule 4:42-9(a)(6).

In this unpublished Appellate Division decision, the court held that Hartford’s contribution to the settlement to the underlying tort action, standing alone, did not render TGI a “successful” claimant. Instead, the court needed to determine whether TGI was entitled to coverage under the policy. After examining the terms of Hartford’s policy, the court decided that Hartford had no duty to defend or indemnify. Thus, it found that TGI was not entitled to fees.

The underlying action involved a significant personal injury when TGI’s employee, Charles Johnson, was working and the hydraulic line of a nearby tamping machine burst, disabling the machine’s brakes, which then struck him and crushed his legs. Johnson claimed that his employer TGI knew that the machine was in disrepair and refused to repair it. Johnson claimed that TGI’s actions met the standard for an intentional wrong under the Workers Compensation Act.

TGI had a $1 million underlying policy with NJM and a $4 million umbrella policy with Hartford. TGI was defended by NJM in the underlying matter. Ultimately, Hartford agreed to contribute its $4 million policy, presuming that NJM agreed to contribute its $1 million policy, for a total settlement of $5 million. As soon as the settlement was agreed upon, TGI then claimed that it should be entitled to its attorneys fees of $71,000 spent in the coverage action against Hartford.

The Appellate Division rejected this claim. First, it found that TGI was not entitled to a defense under the Hartford policy because its underlying policy was never exhausted through payment of its policy limits. The obligation to provide a defense for an excess carrier is predicated on the exhaustion of underlying coverage and, therefore, the termination of the duty to defend by the underlying carrier.

The court also rejected TGI’s arguments that Hartford’s duty to defend was triggered when NJM’s limits were functionally exhausted when NJM expressed a willingness to pay its policy limits.

Last, the court analyzed Hartford’s duty to indemnify. It found that the Hartford policy would have excluded coverage in any event under its expected or intended exclusion. Thus, on this basis as well, TGI was not entitled to fees.

Janice Prioleau fell at a Kentucky Fried Chicken on a substance she believed to be a mix of grease and water on its floor. In Prioleau v. Kentucky Fried Chicken, Inc., 2014 N.J. Super. LEXIS 29 (App.Div. Mar. 3, 2014), the Appellate Division decided that it was error for the trial court to charge the jury with the mode of operation rule and, accordingly, reversed and remanded the matter for a new trial.

The plaintiff and her children stopped in the Cherry Hill KFC restaurant for dinner. The weather had been a torrential storm. Their clothes and sneakers were wet and they tracked water into the restaurant. As plaintiff headed towards the restaurant, she slipped and fell. After she returned home, she was in pain. She claimed injury to her neck and back and sued KFC.

The plaintiff had persuaded the judge to charge the jury with the mode of operation rule, whereby it is unnecessary for a plaintiff to prove notice of the alleged hazardous condition. The defendant claimed that the trial judge mistakenly directed the jury that notice was unnecessary if defendant’s mode of operation created the hazardous condition.

The law recognizes certain instances where the nature of self-service business operations may result in dangerous conditions to invitees. When the mode of operation rule applies, an injured plaintiff is relieved of proving actual or constructive notice where it is probable that the dangerous condition is likely to occur as a result of the nature of the business, the property’s condition, or a demonstrable pattern of conduct or incidents.

The Appellate Division in Prioleau stated that the mode of operation liability does not apply merely because a defendant operates a certain type of business. Rather, the rule is applied when the negligence results from the business’s method of operation, which is designed to allow patrons to directly handle merchandise or products without intervention from business employees, and entails an expectation of customer carelessness.

Here, the court found the trial judge misapplied the mode of operation rule because it should not be invoked merely because defendant operated a fast food restaurant. Plaintiff must establish a causal nexus between the fast food or other business operation and the harm causing her injuries. Here, no such link was established between the manner in which KFC conducted its business and the alleged hazard plaintiff slipped on or its source. Plaintiff was unable to identify the defendant’s business practice that created an implicit or inherent danger likely to cause the resultant injury she sustained.

This case is a win for narrowing the mode of operation rule in premises liability cases. Unfortunately, there was a dissent, which gives the plaintiff an automatic right of appeal to the New Jersey Supreme Court. Thus, this case may continue on in the appeals process.

Typically, defendants ignore an offer of judgment filed by a plaintiff. The published Appellate Division decision in Feliciano v. Faldetta, 2014 N.J. Super. LEXIS (App. Div. 2014) should give defendants a reason to take these offers seriously. In Feliciano, a $15,000 offer of judgment, which was rejected, turned into a $109,185 judgment after attorneys fees, prejudgment interest, and costs were added to the jury award.

This case involved a bodily injury claim arising from an automobile accident. The plaintiff suffered a neck and back injury. The defendant tried to obtain a dismissal through summary judgment based upon the plaintiff’s failure to satisfy the verbal threshold.

After that motion was denied, the plaintiff filed an offer to take judgment in the amount of $15,000. The defendant rejected the offer. Under the New Jersey offer of judgment rule, R. 4:58-2, if an offer is rejected by a defendant and the verdict is at least 120% of the offer, then the defendant must pay all reasonable litigation expenses incurred thereafter, including attorneys fees, prejudgment interest, and expert fees. The case was tried and a $50,000 jury verdict was awarded.

Thereafter, the plaintiff submitted a request for attorneys fees in the amount of $62,780. Presumably, these fees were primarily trial costs. There was a 3 day trial and it was chaired by two attorneys. The trial court judge reduced that request to $42,230 plus $6,831 in costs. The trial court entered a total judgment of $109,185 against the defendant.

In this appeal, the defendant argued that this fee award was excessive and would be duplicative unless there was a one-third contingent fee reduction from this attorneys fee award. The Appellate Division disagreed and held that this fee award was to pay for the work performed after the offer of judgment was rejected. It was between the attorney and the plaintiff to work out fair compensation for services rendered prior to that period.

As a further problem, however, the policy limit was only $50,000. The defendant’s counsel argued that this award of attorneys fees would constitute a hardship to the defendant due to the policy limit. The Appellate Division refused to consider that argument because it had not been raised below with the trial court. Moreover, the court noted that the defendant may have a Rova Farms claim against his carrier for its failure to settle within his policy limit.

In a cross-appeal, the plaintiff argued that she should have been entitled to a fee enhancement, above the hourly rate which was approved by the trial court. The Appellate Division, however, agreed with the trial court judge that no fee enhancement was required in this case. It noted that the fee-shifting provisions of Rule 4:58 was to encourage settlement, rather than to provide an incentive for representation of plaintiffs in certain types of cases. That was the only good news in this case.

Thus, this case shows the risk of not accepting an offer of judgment. Not only was a judgment entered of more than 7 times the original judgment offered, but now the defendant’s carrier may be faced with paying almost twice its policy limit if the defendant succeeds under a Rova Farms claim.

By: Betsy G. Ramos, Esq.

The Doctrine of Frustration of Purpose is a valid defense in a breach of contract action. However, in JB Pool Management, LLC v. Four Seasons at Smithville Homeowners Assoc., 2013 N.J. Super. LEXIS 88 (June 13, 2013 App. Div.), the Appellate Division held that this defense must be pled as an affirmative defense for a defendant to defend on that basis.

In JB Pool, a pool management company agreed to a one year contract to supply a condominium association with lifeguards and maintenance services for the association’s indoor pool. During the term of the contract, a mold infestation was discovered in the pool facilities, prompting government officials to close the pool for 7 months while the mold was being remediated.

JB Pool sued the association for 4 months of unpaid service fees while the pool was closed. At trial, the trial court judge permitted the jury to consider whether the monthly fees could be excused based upon the doctrine of frustration of purpose, despite the association’s failure to raise this doctrine as an affirmative defense in its answer. Based upon this defense, the jury found the association not liable to pay the fees.

This defense would find that performance is “excused” where the main purpose of the contract is frustrated or destroyed due to an unanticipated supervening event. This condition would have to go to the essence of the contract. Here the defendant argued that the mold-related shutdown of the indoor pool excused its monthly payment obligations during the closure period.

Because the association had not specifically pled this doctrine as an affirmative defense, the Appellate Division found that the plaintiff was prejudiced in not being able to pursue discovery or present pertinent evidence at trial on this issue. However, because there was no prior case law requiring it to be affirmatively pled before this case was decided, the court decided to reverse the jury verdict and remand the case back to the trial court. The plaintiff would be permitted to conduct discovery on this issue and there would be a new trial on the breach of contract issue.

This case recognizes a new viable defense in breach of contract actions. However, it also points out the potential hazard of not identifying all possible affirmative defenses when the defendant files its answer. But for the court’s leniency in permitting the defendant to continue to pursue this defense, the association would have been foreclosed from defending on this basis.

With all the ice and snow this winter, condominium associations (and their insurers) that maintain interior sidewalks in their community will be breathing a sigh of relief that they have no liability for an injury from a fall on an icy patch on an interior sidewalk. In the unpublished Appellate Division decision, Qian v. Toll Brothers Inc., docket no. A-1352-12T2 (February 7, 2014), the court ruled that a condominium association could not be held responsible for a fall on an interior sidewalk abutting a privately owned street of the community.

The plaintiff lived in an adult residential community at the Villas at Cranbury Brook in Plainsboro. On the day of the accident, there was freezing rain and ice that accumulated on the sidewalks. Plaintiff and her husband decided to walk to the food market. On the way back, she fell on an icy patch of an interior sidewalk in the community directly in front of one of the homes.

The court noted the long line of cases holding that residential property owners have no duty to maintain public sidewalks. While commercial property owners have been held responsible to maintain public sidewalks, a judicial distinction drawn between residential and commercial property owners remained intact.

In the New Jersey Supreme Court case, Luchejko v. City of Hoboken, decided in 2011, the Court placed condominium owners on the residential side of this dichotomy for purposes of determining liability for a fall on an adjoining public sidewalk. The Court rejected the argument that a homeowner’s association was more like a commercial property owner in its responsibilities to the public.

In Qian, the plaintiff argued that Luchejko should not apply because she was injured while walking on a sidewalk located within the residential community, rather than on a sidewalk abutting a public roadway. Plaintiff argued that the defendant Association was responsible by both statute and its by laws to maintain all common areas of the property and collected a maintenance fee to do so, from which it purchased liability insurance.

The Appellate Division was not swayed by this argument, finding that a similar one had been presented in Luchejko and rejected by the Supreme Court. The plaintiff further tried to distinguish the interior sidewalks as different than public sidewalks. The court, however, also rejected this distinction because the interior sidewalks were used by the public and functioned just like a public sidewalk.

The court concluded by stating that if a private residential community is to be treated differently with respect to snow and ice removal on its interior sidewalks than abutting public sidewalks, it is up to the Supreme Court to make the appropriate distinction.

No Duty Owed by Private Utility Company to Remove Dead Tree in Right of Way to Prevent Accident

The Plaintiffs in McGlynn v. State of New Jersey, no. L-2-06 (App. Div. Jan. 3, 2014) claimed that Jersey Central Power and Light Company (“JCP&L”) owed a duty of care to remove vegetation in its right of way that posed a risk of harm to users of the highway. The Appellate Division found that no such duty existed.

The Plaintiffs asserted a negligence claim against JCP&L when a tree fell on their car as they were traveling on a rural road. It killed one occupant and injured the other three occupants. As the tree fell, it brought down power lines with it.

The tree was located on privately owned land, situated within JCP&L’s right-of-way. The tree was also in the right-of-way maintained by the New Jersey Department of Transportation (“NJDOT”). NJDOT would trim the trees in the right-of-way unless the work needed to be done was located near utility poles or power lines. Then NJDOT would contact the utility company to do the work.

The Appellate Division considered whether there was any duty owed by JCP&L to the plaintiffs. It was undisputed that JCP&L had a commitment to keep vegetation controlled to prevent interruptions in service. However, the court found that it would create an onerous burden to expand that commitment to include maintenance of vegetation for the benefit of passing motorists where this responsibility already exists on the individual property owner and NJDOT.

The Court pointed out that there was no contractual obligation of JCP&L to do more than to maintain its lines within its right-of-way so as to provide uninterrupted service. The obligation to monitor trees over hundreds of miles of roadway to ensure the safety of passing motorists would be overwhelming to a private entity.

Hence, the Appellate Division concluded that JCP&L’s failure to remove a dead tree from a stretch of woods, despite having such tragic consequences, was neither foreseeable, nor within the scope of its day-to-day activities. The Court found that this duty fell on the private landowner and NJDOT.

Our appeals courts often liberally construe the circumstances to impose a duty on a defendant so as to find a remedy for an injured party. Likely, because there were other culpable parties (the landowner and the NJDOT), the Appellate Division did not impose such a duty on this private utility company.

Illinois Based Employee of Computer Consulting Software Company Cannot be Sued in New Jersey Due to Lack of Jurisdiction

Baanyan Software Services tried to sue its Illinois based employee in New Jersey for breach of contract. In Baanyan Software Services v. Kuncha, no. A-2058-12T3 (Dec. 19, 2013 App. Div.), the Appellate Division found that New Jersey lacked jurisdiction over this employee and the company would have to sue him in Illinois.

Baanyan, an information technology development and software consulting company, with headquarters in Edison, New Jersey, hired the defendant Kuncha as a computer system analyst pursuant to a written consulting agreement. When Kuncha was hired, she was living in California, which is where she signed the agreement.

The terms of the contract were negotiated by email and telephone calls. The contract contained no forum selection clause, in which the parties would select a forum state as the state where any lawsuits would be filed for any disputes that might arise under the contract.

The contract required that Kuncha relocate to Illinois to service Baanyan’s clients. Thereafter, she was paid by direct deposit into her Illinois bank account. At no time, did the defendant work in New Jersey, nor did she provide any services to a Baanyan client located in New Jersey.

She only worked for Baanyan for about 6 months, and began working for one of their clients and then a competitor after moving to Tennessee. Baanyan sued Kuncha for breach of contract and other claims.

Kuncha moved to dismiss based upon lack of jurisdiction. She argued lack of minimum contacts with the State of New Jersey. The Appellate Division applied the federal constitutional standard and found that her acts did not create either general jurisdiction, nor specific jurisdiction.

Simply telephonic contacts with individuals and entities located in New Jersey alone were insufficient minimum contacts to establish personal jurisdiction of the defendant. Receiving payment from Baanyan and submitting timesheets to Baanyan were all electronic and did not require any contact with New Jersey. The court found that, to allow Baanyan, an international company to compel an individual employee to defend a New Jersey lawsuit, where that employee was hired to work in Illinois, violated principles of “fair play and substantial justice.”

This case points out the difficulties there may be in obtaining jurisdiction in suing an individual or a company who has no connection to the State of New Jersey but for a contract entered into with the New Jersey company. With the use of today’s technology, many contracts are entered into solely using electronic means. Using a forum selection clause would likely have prevented this jurisdictional problem because the parties would have chosen this state as its forum to resolve any disputes.