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Heyert v. Taddese

Superior Court of New Jersey, Appellate Division

June 25, 2013

BRIAN HEYERT, JUDE NOEL, DIANA WEINER, PETER SCHOEPE, JR., and KARL MAWHINNEY, Plaintiffs-Respondents/ Cross-Appellants,
v.
MENASSIE TADDESE and YAYINE MELAKU, Defendants-Appellants/ Cross-Respondents, and HOBOKEN RENT LEVELING & STABILIZATION BOARD, Defendants-Respondents. YAYINE MELAKU and MENASSIE TADDESE, Plaintiffs-Appellants,
v.
HOBOKEN RENT LEVELING & STABILIZATION BOARD and THE CITY OF HOBOKEN, Defendants-Respondents.

Argued April 29, 2013.

On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-1247-10/L-1460-10 (consolidated).

Richard W. Mackiewicz, Jr., argued the cause for appellants/cross-respondent (Mackiewicz & Associates, L.L.C., attorneys; Mr. Mackiewicz, on the brief).

Cathy C. Cardillo argued the cause for respondents/cross-appellants Brian Heyert, Jude Noel, Diana Weiner, Peter Schoepe, Jr. and Karl Mawhinney.

Victor A. Afanador argued the cause for respondents Hoboken Rent Leveling & Stabilization Board and the City of Hoboken (Lite DePalma Greenberg, L.L.C, attorneys; Mr. Afanador, of counsel; Susana Cruz Hodge and Marissa L. Quigley, on the brief).

Before Judges Parrillo, Sabatino and Fasciale.

OPINION

PARRILLO, P.J.A.D.

This appeal arises from a landlord-tenant dispute. The tenants, plaintiffs Brian Heyert, Jude Noel, Diana Weiner, Peter Schoepe, Jr., and Karl Mawhinney (collectively tenants), claimed that the landlords, defendants Menassie Taddese and Yayine Melaku, violated the New Jersey Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -195, by charging rent in excess of that allowed by local rent control ordinances, and that the municipality erred in granting the landlords a hardship rent increase. The landlords claimed that the municipality's rent control ordinance is unconstitutional and that the legal base rent calculated under the ordinance was arbitrary, capricious and unreasonable.

At a hearing on the parties' respective actions in lieu of prerogative writs, the court vacated the hardship rent increase and dismissed the landlords' challenge to the legal base rent calculations. Later, in ruling on motions for summary judgment, reconsideration, clarification, and attorney fees, the court dismissed the landlords' constitutional claims against the municipality, and found in favor of the tenants on their CFA claim. The court entered final judgment in favor of the tenants for treble the amount of excess rent of $59, 466, and for attorney fees and costs.

On appeal, the landlords argue that the court erred in finding the CFA to be applicable to this dispute. Further, they contend that even if the CFA were applicable, the court erred in finding that there were no genuine issues of material fact as to their violation of it. The landlords also assert error in the court's dismissal of their constitutional claims, its refusal to entertain their challenge to the legal base rent calculation, and its reversal of the hardship rent increase. Finally, they claim that the attorney fees awarded by the court were excessive.

By way of background, the Caparra homes project was built in Hoboken in 1985 as part of a federally-subsidized and city-managed program to provide home ownership opportunities to persons with moderate incomes and rental opportunities to those with low incomes. Buyers of the project's two-family homes received a down payment of $15, 000 in exchange for a twenty-year commitment to rent the home's upper unit to a Section 8[1] eligible family pursuant to a Housing Assistance Payments (HAP) contract. The HAP contracts began to expire in 2005, at which time the rental units became subject to the City's Municipal Rent Control Ordinance.[2]

Landlords Melaku and Taddese (collectively landlords) are husband and wife. They purchased their first Caparra home, located at 90 Grand Street, in May 2005. After the HAP contract on that property expired in June 2005, the landlords notified their upstairs tenant that they would be raising his rent by twenty-eight percent. The tenant complained to the Division Chief of the Hoboken Rent Leveling & Stabilization Board (Board), who notified the landlords that they were only entitled to increase the rent by 3.4% in accordance with the City's rent control ordinance. According to Melaku, this incident made her and Taddese "keenly aware of rent control."

On October 16, 2006, the landlords purchased a second Caparra home, located at 81 Adams Street, for $955, 000. During the winter and spring of 2007, the property was extensively renovated and improved.

On June 27, 2007, the landlords entered into a one-year lease with Heyert, Noel and Weiner, effective July 1, 2007, for "the apartment located at 81 Adams Street, Unit 2 and Parking Spot #3 referred to hereafter as 'the Apartment.'" The total monthly rent for the apartment was set at $4000 and the tenants were required to pay a $6000 security deposit.

On July 20, 2007, the landlords converted the two units at 81 Adams Street into condominiums. The landlords did not inform the tenants of the condominium conversion nor did they register Unit 2 with the rent leveling office. In August 2007, the landlords sold Unit 1 and used the proceeds of the sale to pay off their mortgage on the entire 81 Adams Street property. In April 2008, however, the landlords took out a new mortgage on Unit 2, in the amount of $417, 000.

During the summer of 2008, Weiner's tenancy ceased, and that of Schoepe and Mawhinney began. In July 2008, the landlords raised the rent for Unit 2 to $4100 per month; in July 2009, they decreased the rent to $3900 per month.

On August 18, 2009, the tenants filed a request for a legal rent calculation with the Division of Rent Leveling and Stabilization. On September 21, 2009, the Board's Division Chief notified the landlords that the legal base rent for the apartment was $2086 per month and that "if a tenant has been overcharged in rent, such excess rent shall be refunded or credited to the tenant by the landlord forthwith." The landlords were also notified that they had twenty days to appeal the legal base rent determination.

The landlords filed their rent appeal on November 12, 2009, well outside of the twenty-day limitation period. The appeal was considered by the Board at its meeting on December 9, 2009, and denied by a unanimous vote.

On December 11, 2009, the landlords amended their 2009 rent control registration statement for the apartment to indicate for the first time that $400 of the $3900 rent was for a parking surcharge. The tenants deny that they ever paid $400 for parking, claiming that parking was included for free in the monthly rent, and citing two email messages from Melaku in May 2007 in which she first offered to give the tenants parking for $125 per month for a total rent of $4125, and later said that she would not charge for parking and the total rent would be $4000.

On December 22, 2009, the landlords filed an application for a hardship rent increase that was heard at the Board meeting on January 13, 2010. On January 27, 2010, the Board issued a resolution approving a hardship increase of $1962, allowing a total rent of $4048. The Board denied the landlords' request that the increase be made retroactive, however, and ruled that "all increases would be prospective." On January 29, 2010, the Division Chief notified the landlords that the hardship application had been granted and that they must serve the tenants with thirty-days notice' of the rental increase.

On February 4, 2010, the tenants agreed to settle with the landlords for a reduced sum. In exchange for notarized releases of their claims, the tenants received checks from the landlords for amounts varying between $6000 and $12, 000. When deposited, however, the checks were returned for insufficient funds.

On February 11, 2010, Taddese sent an email message to the tenants asserting that the settlement agreement was not binding. On February 17, 2010, he sent a message stating that the proper base rent combined with the tax surcharge might well amount to more than the rent that was charged and warning that the tenants must "come to some agreement based on these new realities."[3]

Thereafter, both parties filed actions in lieu of prerogative writs in the Law Division. On March 3, 2010, the tenants filed a complaint against the landlords and the Board, asserting claims against the landlords for overcharging rent, violating the CFA, and violating the Rent Security Deposit Act (RSDA), N.J.S.A. 46:8-19 to -26, and against the Board for erroneously granting the landlords' request for a hardship rent increase.

Days later, on March 15, 2010, the landlords filed a complaint against the Board and the City of Hoboken, claiming that the Board acted arbitrarily, capriciously, and unreasonably in approving an erroneous base rent calculation for their rental unit, that the City's rent control ordinance was unconstitutionally vague and void in its application, and that the actions of the City and the Board deprived them of their civil rights under 42 U.S.C.A. §1983. A later amendment added claims for due process violations and a regulatory taking of the landlords' property.

The two complaints were consolidated and various motions followed. On August 13, 2010, the Law Division judge vacated the Board's grant of a hardship rent increase to the landlords and remanded the landlords' hardship application to the Board for reconsideration; dismissed the landlords' action in lieu of prerogative writs in its entirety, finding that the landlords' claims were untimely and that none of the Board's actions were outside the scope of its authority; and denied the tenants' motion for summary judgment as premature and therefore without prejudice. On cross-motions for reconsideration, the court, by orders of October 7, 2010, revised its August 13, 2010 order to clarify that the landlords' constitutional claims were preserved, but denied the landlords' motion to reconsider the dismissal of their challenge to the Board's base rent calculation.

On December 23, 2010, the tenants renewed their motion for summary judgment on their excessive rent, RSDA, and CFA claims. The City joined this motion, seeking summary judgment on the landlords' constitutional claims. Following argument, the judge granted summary judgment in favor of the City and Board on all of the landlords' constitutional claims, and in favor of the tenants on their excess rent claim, but denied summary judgment on the tenants' claims under the RSDA and the CFA. On cross-motions for reconsideration, the judge granted summary judgment in the tenants' favor on their CFA claim, but refused to reconsider her denial of summary judgment on the RSDA claim.

A conforming order was entered granting judgment in favor of the tenants for treble excess rents in addition to attorney fees and costs. Thereafter, the tenants submitted an affidavit of fees and costs in which they expressly waived their claim under the RSDA. On May 4, 2011, the judge entered an order granting the tenants $178, 398 for treble damages under the CFA, $29, 112.75 for reasonable attorney fees, and $738.32 for costs.

This appeal follows in which the landlords raise the following issues:

I. DID THE COURT ERR BY GRANTING SUMMARY JUDGMENT IN FAVOR OF THE TENANTS ON THEIR CONSUMER FRAUD ACT?
A. DID THE COURT ERR BY CONCLUDING THAT THE LANDLORDS WERE IN THE BUSINESS OF RENTING PROPERTY?
B. DID THE LANDLORDS COMMIT AN AFFIRMATIVE ACT OF UNLAWFUL CONDUCT BY CHARGING RENT IN EXCESS OF THAT ALLOWED BY THE MUNICIPAL RENT CONTROL ORDINANCE?
C. DID THE TENANTS PROVE THAT THEY SUFFERED AN ASCERTAINABLE LOSS AND DID THE COURT CALCULATE THE AMOUNT OF THAT LOSS PROPERLY?
D. DID THE TENANTS PROVE THAT THEIR DAMAGES WERE CAUSED BY THE LANDLORDS' UNLAWFUL ACT?
II. DID THE COURT ERR BY DISMISSING THE LANDLORDS' FACIAL AND AS-APPLIED CHALLENGES TO THE VALIDITY OF THE HOBOKEN RENT CONTROL ORDINANCE?
III.DID THE COURT ERR BY DISMISSING THE LANDLORDS' ACTION IN LIEU OF PREROGATIVE WRITS CHALLENGING THE BOARD'S BASE RENT CALCULATION?
IV. DID THE COURT ERR BY VACATING AND REMANDING THE HARDSHIP INCREASE GRANTED TO THE LANDLORDS, AND DID THE BOARD ERR IN REFUSING TO APPLY THE INCREASE RETROACTIVELY?
V. DID THE COURT ERR BY DISMISSING THE LANDLORDS' CLAIMS FOR CIVIL RIGHTS VIOLATIONS, IMPAIRMENT OF CONTRACT, AND REGULATORY TAKING?
A. DID THE COURT ERR BY FINDING THAT THE LANDLORDS' CLAIMS UNDER 42 U.S.C. §1983 WERE TIME-BARRED?
B. DID THE COURT ERR BY FINDING THAT THE LANDLORDS' TAKINGS CLAIM LACKED LEGAL MERIT?
VI. DID THE COURT ERR IN ITS AWARD OF ATTORNEY FEES TO THE TENANTS?
VII.ARE THE TENANTS JUDICIALLY ESTOPPED FROM ENFORCING THE JUDGMENT ENTERED BELOW?
VIII. IF THIS MATTER IS REMANDED TO THE TRIAL COURT, SHOULD PROCEEDINGS BE STAYED PENDING THE OUTCOME OF A PENDING CLASS ACTION LAWSUIT?
IX. IF THIS MATTER IS REMANDED TO THE TRIAL COURT, SHOULD DISCOVERY BE REOPENED?

I.

We first address the application of the CFA in light of the landlords' multi-pronged argument it does not pertain to them because they are not professional sellers and the tenants suffered no ascertainable loss, but that even if applicable, there are genuine issues of material fact as to their liability given their claimed reliance on attorney advice.

The court below reviewed the proofs required for a successful CFA claim as set forth in Strawn v. Canuso, 140 N.J. 43, 60 (1995), Cox v. Sears Roebuck & Co., 138 N.J. 2, 18 (1994), and 49 Prospect Street Tenants Ass'n v. Sheva Gardens, Inc., 227 N.J.Super. 449, 468 (App. Div. 1988). Relying on Wozniak v. Pennella, 373 N.J.Super. 445 (App. Div. 2004), certif. denied, 183 N.J. 212 (2005), the court observed that "there is no scienter requirement in order to trigger liability under the Consumer Fraud Act." Thus, it found that "any knowledge or intent on the part of the Landlords is irrelevant for purposes of determining whether Landlords violated the Consumer Fraud Act." It further found that the landlords knew about the rent control ordinance, charged rent in excess of that ordinance, and were in the business of renting apartments. It concluded that no genuine issue of material fact existed as to whether the landlords made an affirmative misrepresentation by raising the rents in violation of the ordinance, and that the tenants were therefore entitled to summary judgment on their CFA claim. We agree.

On appeal, we review a summary judgment decision de novo, applying the same legal standard as the trial court in determining whether the grant or denial of summary judgment was correct. Hinton v. Meyers, 416 N.J.Super. 141, 146 (App. Div. 2010); Antheunisse v. Tiffany & Co., Inc., 229 N.J.Super. 399, 402 (App. Div. 1988), certif. denied, 115 N.J. 59 (1989). Of course, summary judgment is appropriate where "there is no genuine issue as to any material fact challenged and . . . the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c).

(A) The CFA

The CFA provides a remedy for any consumer who has suffered an ascertainable loss of moneys or property as a result of an unlawful commercial practice and allows him or her to recover treble damages, costs, and attorneys fees. Lee v. First Union Nat'l Bank, 199 N.J. 251, 257 (2009) (citing N.J.S.A. 56:8-19); Gennari v. Weichert Co. Realtors, 148 N.J. 582, 604 (1997); Cox, supra, 138 N.J. at 17. To fully advance the Act's remedial purposes, courts construe its provisions broadly and liberally in favor of consumers. Lee, supra, 199 N.J. At 257-58; Papergraphics Int'l, Inc. v. Correa, 389 N.J.Super. 8, 12 (App. Div. 2006); Skeer v. EMK Motors, Inc., 187 N.J.Super. 465, 470 (App. Div. 1982).

Unlawful practices fall into three general categories: affirmative acts, knowing omissions, and violations of regulations promulgated pursuant to the statute. Allen v. V & A Bros., Inc., 208 N.J. 114, 131 (2011); Int'l Union of Operating Eng'rs Local No. 68 Welfare Fund v. Merck & Co., 192 N.J. 372, 389 (2007); Cox , supra, 138 N.J. at 17. Under N.J.S.A. 56:8-2, "affirmative acts" are defined as "unlawful practices that include unconscionable commercial practices, fraud, deception, false promise, false pretense, and misrepresentation." Thiedemann v. Mercedes-Benz USA, 183 N.J. 234, 245 (2005). An intent to deceive is not a prerequisite to the imposition of liability for an affirmative act. Ibid.; Gennari , supra, 148 N.J. at 605; accord Bosland v. Warnock Dodge, Inc., 197 N.J. 543, 556 (2009). "One who makes an affirmative misrepresentation is liable even in the absence of knowledge of the falsity of the misrepresentation, negligence, or the intent to deceive." Gennari , supra, 148 N.J. at 605.

In order to state a private claim under the CFA, a consumer must allege three elements: unlawful conduct; an ascertainable loss; and a causal relationship between the unlawful conduct and the ascertainable loss. Bosland , supra, 197 N.J. at 557; Int'l Union of Operating Eng'rs, supra, 192 N.J. at 389; N.J.S.A. 56:8-19. In addition, before the CFA can be applied the consumer must show that the nature of the transaction was "consumer oriented, " Papergraphics , supra, 389 N.J.Super. at 12-14, and involved the sale of "merchandise, " 539 Absecon Blvd., L.L.C. v. Shan Enters., 406 N.J.Super. 242, 278 (App. Div.), certif. denied, 199 N.J. 541 (2009); and that the alleged violator was acting in "a professional, ...


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