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Kho v. Cambridge Management Group

August 4, 2010


On appeal from the Superior Court of New Jersey, Law Division Middlesex County, Docket No. L-5799-08.

Per curiam.


Submitted November 10, 2009

Before Judges Carchman and Lihotz.

Defendants Cambridge Management Group, LLC, James Giordano and Raul Sloezen (CMG) appeal from an interlocutory order of the Superior Court denying their motion to compel arbitration and dismiss plaintiff Ernesto V. Kho's complaint without prejudice. We granted leave to appeal and now reverse and remand.

The relevant facts are simply stated and are not in significant dispute. In October 2004, plaintiff was seriously injured in an automobile accident. Thereafter, he brought suit to recover damages for his injuries in the Law Division. While the action was pending, plaintiff asked his then-attorney for a loan against any future settlement. Counsel referred plaintiff to CMG, a company engaged in advancing funds against future settlements, which is then secured by a lien against the proceeds of the final financial resolution of the litigation. CMG describes itself as "the only option available to plaintiffs . . . to relieve the pressure 'to accept a settlement offer not in the client's best interests simply in order to survive financially.'" In contrast, plaintiff characterized CMG as "offer[ing] small personal loans to people with pending personal injury lawsuits, to be repaid with exorbitant interest upon settlement of their cases."

After reviewing defendants' proposed terms with counsel, plaintiff signed a contract on October 19, 2005, which granted CMG a lien against the proceeds of any potential settlement in exchange for a $7,500 advance payment. The contract provided plaintiff would owe the sum of $10,748.13 if CMG received payment before April 17, 2006, and $10,748.13 "plus 4.99% of $10,748.13 per month, compounded monthly, for each and every thirty day period following 4/17/2006." Plaintiff was provided a schedule showing the total amount due for each successive month of non-payment, up to $25,822.33 if payment was not made within two years.

The agreement included the following provision:

(b) Plaintiff acknowledges and agrees that any and all disputes that arise concerning the terms, conditions, interpretation or enforcement of this Agreement shall be determined through arbitration pursuant to the Rules and methods outlined by the American Arbitration Association in New Jersey, or in a Court of competent jurisdiction, at the election of CMG. Plaintiff agrees that the laws of the State of New Jersey shall control the interpretation of the Agreement.

(c) It is also understood, acknowledge [sic] and agreed that the Plaintiff will indemnify CMG against any and all losses, liability, set back and expenses, including but not limited to, attorney fees resulting from or arising out of the enforcement of this and all attached Agreements.

Approximately six months later, plaintiff sought another loan from his attorney, who again referred him to CMG. On April 27, 2006, plaintiff executed a second contract with CMG, receiving a $3,000 advance. This agreement contained identical fee and arbitration provisions as in the October 2005 contract. In July 2006, plaintiff sought an additional $5,000 advance through counsel, but CMG refused to make the advance.

Plaintiff's lawsuit settled for $75,000. The parties agree that CMG ultimately received $30,000 but disputed the methodology for arriving at that number. According to defendants, CMG agreed to accept $30,000 as a "reduced amount" after negotiations following a dispute over fees; plaintiff claims defendants initially received $35,939.20 but unilaterally sent his attorney a check for $5,939.20 to "adjust[] for [a] miscalculation of the interest . . . ." Plaintiff's counsel received $24,717.33, together with costs and expenses of $1,943.85, and plaintiff received $12,399.62.

In July 2008, plaintiff retained present counsel and filed a complaint in the Law Division alleging violations of the New Jersey Licensed Lenders Act (LLA), N.J.S.A. 17:11C-1 to -50; Criminal Usury Law (CUL), N.J.S.A. 2C:21-19*fn1 ; Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to 184; and Truth in Consumer Contract, Warranty and Notice Act (TCCWNA), N.J.S.A. 56:12-14 to -18. Defendants subsequently filed a "Demand for Arbitration" with the American Arbitration Association (AAA).

On December 13, 2008, defendants requested the arbitration be held in abeyance, and then defendants moved in Law Division to compel arbitration proceedings and dismiss plaintiff's suit without prejudice. In the alternative, defendants moved that the Superior ...

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