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First Atlantic Federal Credit Union v. Perez

March 27, 2007

FIRST ATLANTIC FEDERAL CREDIT UNION, PLAINTIFF,
v.
CHARLES S. PEREZ, DEFENDANT, AND BANK OF AMERICA, DEFENDANT-APPELLANT,
v.
UNITED CHECK CASHING, THIRD-PARTY DEFENDANT-RESPONDENT, AND JP MORGAN CHASE, THIRD-PARTY DEFENDANT.



On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-1656-05.

The opinion of the court was delivered by: Parrillo, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued February 28, 2007

Before Judges Lefelt, Parrillo and Sapp-Peterson.

Defendant/third-party plaintiff Bank of America (BOA) appeals the final judgment denying its motion for attorney's fees against third-party defendant Lira Capital Corp. (Lira Capital). We affirm.

The essential facts are not in dispute. Defendant Charles Perez secured a car loan from plaintiff First Atlantic Federal Credit Union (First Atlantic) and granted First Atlantic a security interest in a vehicle that was subsequently damaged in an accident and deemed a total loss. As a result, Perez's auto insurance carrier, Allstate of New Jersey Insurance Company (Allstate), issued a check directly to Perez in the amount of $4,221.96 in satisfaction of his claim under his policy. The check was jointly payable to Perez "and First Atlantic FCU" and drawn on Allstate's account with BOA. Perez thereafter presented the check to Lira Capital d/b/a United Check Cashing*fn1 , which cashed the check without the endorsement of First Atlantic as co-payee and gave the proceeds to Perez.

First Atlantic then sued Perez and BOA to recover the proceeds of the check, alleging that Perez had deposited the check into his account at BOA and that BOA had negotiated the check without the proper endorsement.*fn2 BOA in turn filed a third-party complaint against Lira Capital as the cashing agent,*fn3 alleging, among other things, that Lira Capital breached the presentment warranty under the Uniform Commercial Code (UCC), Title 12A of the Revised Statutes of New Jersey, and violated the Fraudulent Transfer Act, N.J.S.A. 22:2-20 to -34. Lira Capital answered, asserting fifteen affirmative defenses and cross-claiming for contribution and indemnification.

Less than three months later, on October 21, 2005, BOA made a Rule 1:4-8 demand that Lira Capital withdraw its answer, claiming it was filed in bad faith,*fn4 and demanding that Lira Capital pay the check amount to First Atlantic and pay BOA's attorney fees. Less than one month later, First Atlantic and Lira Capital settled the dispute on November 16, 2005, and the underlying action was dismissed on March 3, 2006. By letter of November 17, 2005, Lira Capital advised BOA of the settlement and the putative dismissal of the lawsuit.

Despite the settlement, BOA advised Lira Capital that the matter between them was not fully resolved as the issue of attorney's fees and costs remained outstanding. Thus, BOA sent a second letter on December 19, 2005, again demanding attorney's fees and claiming that Lira Capital's encashment constituted conversion. A third demand letter was sent on February 3, 2006, enclosing a summary of BOA's costs and legal fees in defending the underlying action.

When Lira Capital refused to pay BOA's attorney's fees and costs, BOA filed a motion for summary judgment on its third-party complaint and for attorney's fees and costs "pursuant to R[ule] 1:4-8 and N.J.S.A. 2A:15-59.1." Lira Capital cross-moved for dismissal of BOA's third-party complaint. Following a hearing, the court dismissed BOA's third-party complaint with prejudice, finding that because Lira Capital "made good" on the check, BOA suffered no damages under the UCC; that there was no unjust enrichment, and no indemnification or contribution was necessary; and that there was no fraud and therefore no violation of the Fraudulent Transfer Act. The judge also denied BOA's motion for attorney's fees, finding neither a statutory basis for fee shifting, nor fraud to warrant an exception to the American rule embodied in Dorofee Planning Bd. of the Tp. of Pennsauken, 187 N.J. Super. 141 (App. Div. 1982).

On appeal, BOA argues that it is entitled to attorney's fees as other "expenses" resulting from Lira Capital's breach of the UCC's presentment warranty, N.J.S.A. 12A:4-208(b); as "damages" for bad faith conduct under N.J.S.A. 12A:4-103(e); as common law damages where the tort of another forces an innocent third party into litigation; and under the Frivolous Litigation statute and court rule. We reject each of the bases proffered.

As a threshold matter, we note that New Jersey strictly adheres to the "American rule" in regards to attorney's fees. See Van Horn v. City of Trenton, 80 N.J. 528, 538 (1979) ("the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys' fee from the loser" (quoting Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 95 S.Ct. 1612, 1616, 44 L.Ed. 2d 141 (1975))). Indeed, "sound judicial administration will best be advanced by having each litigant bear his own counsel fees." Gerhardt v. Continental Ins. Co., 48 N.J. 291, 301 (1966). Consistent with this policy, attorney's fees are not recoverable absent express authorization by statute, court rule or contract. State of New Jersey, D.E.P. v. Ventron Corp., 94 N.J. 473, 505 (1983). See also R. 4:42-9(a)(7) and (8). And even where expressly provided, "the narrowness of [the exceptions] . . . has always [been] rigorously enforced, lest they grow to consume the general rule itself." Van Horn, supra, 80 N.J. at 538. Where there is such express authorization and attorney's fees are granted or denied, we will not disturb the lower court's decision unless there is a clear abuse of discretion. Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 25 (2004); Rendine v. Pantzer, 141 N.J. 292, 317 (1995).

It is against this backdrop that we view BOA's claim for attorney's fees under the Check Cashers Regulatory Act of 1993, N.J.S.A. 17:15A-30 to -52; the UCC; the Frivolous Litigation statute, N.J.S.A. 2A:15-59.1, and Rule 1:4-8; and the common law. We ...


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