Justia U.S. 3rd Circuit Court of Appeals Opinion Summaries

Merchants challenged 2010 N.J. Laws Chapter 25, amending the unclaimed property statute, N.J. Stat. 46:30B, to provide for escheat of stored value cards (gift cards). Chapter 25 presumes cards to be abandoned after two years of inactivity and requires issuers to transfer remaining value to the state. Issuers must obtain name and address of the purchaser or owner of each card. If the issuer's state exempts cards from its unclaimed property statute, unredeemed balances of cards previously-issued in New Jersey, where information was not recorded, must be reported to New Jersey. The address where the card issued or sold is presumed to be the owner's domicile. The district court enjoined retroactive application of Chapter 25 and prospective enforcement of the place-of-purchase presumption, but declined to enjoin data collection and two-year abandonment provisions. The Third Circuit affirmed. Chapter 25 substantially impaired contractual relationships by imposing unexpected obligations and did not reasonably accommodate the rights of the parties in light of the public purpose. The abandonment period is not preempted by the Credit CARD Act, 15 U.S.C. 1693l-1(c). The place-of-purchase presumption is preempted by federal common law, under which the first opportunity to escheat belongs to the state of the last known address of the creditor, shown by the debtor's records. If the primary rule does not apply, the right to escheat is with the state in which the debtor is incorporated. View "NJ Retail Merch. Assoc. v. Sidamon-Eristoff" on Justia Law

This case was remanded from the U.S. Supreme Court. Appellants Keith Litman and Robert Watchel asked the Third Circuit to reverse a district court order that compelled them to arbitrate their contract dispute with Cellco Partnership (d/b/a Verizon Wireless) on an individual rather than class-wide basis. In an unpublished opinion, the Third Circuit vacated the district court order because a recent Third Circuit precedent bound the Court to conclude that class arbitration should have been available to Appellants. Verizon responded by seeking a stay of the mandate and seeking review by the Supreme Court. Having reviewed the supplemental briefing and applicable legal authority, the Third Circuit concluded that the applicable law at issue that required the availability of classwide arbitration created a scheme inconsistent with the Federal Arbitration Act. Accordingly, the Court affirmed the district court’s order compelling individual arbitration in accordance with the terms of the individual Appellants’ contracts with Verizon.

Defendant began working for plaintiff in 2006 and entered into agreements that contained restrictive covenants and an arbitration provision. In 2009 defendant left the company and allegedly began acting in violation of the covenants. The company filed suit, but did not mention the arbitration clause. The district court denied the company's request for a preliminary injunction; months later, it denied the company's motion to stay pending arbitration and enjoined arbitration. The company made the demand under the Federal Arbitration Act, 9 U.S.C. 2, more than 10 months after it initiated suit. The Third Circuit affirmed. The company waived the right to enforce the arbitration agreement. The existence of a contractual "no waiver" provision did not require a court to disregard the company's conduct; its failure to notify defendant of its intent to seek arbitration substantively prejudiced defendant's approach to the case. In addition to substantive legal prejudice, defendant spent considerable time and money to educate his attorney in preparation for a trial.

The company sued, in New Jersey, for breach of contract, conversion, and embezzlement, based on defendant's retention of checks worth $587,775.05. Defendant asserted counterclaims based on termination of an employment contract. While the lawsuit was pending, the company brought an identical action in South Korea. In 2005, a South Korean court entered judgment for the company in an amount equivalent to $587,755.05 plus post-judgment interest. In 2006, the U.S. district court entered judgment for the company, $587,755.05 on the conversion claim, and for defendant, $910,000 on the counterclaim. The U.S. district court declined the company's request that a turnover order include a setoff, reasoning that setoff would result in double recovery. The Third Circuit affirmed, but remanded pending enforcement of the Korean judgment. Defendant paid the Korean judgment. The district court rejected an argument that the Korean judgment should be equalized with the American judgment in the amount of $205,540.05, the difference between the American judgment ($587,755.05) and actual payments adjusted by currency devaluation ($382,215). The Third Circuit affirmed, characterizing the claim as an attempt to satisfy the Korean judgment for a second time.

The insurance company sought a declaratory judgment that a plane crash that killed five people did not trigger coverage under a fleet insurance policy issued to an aircraft maintenance and charter company. The policy identifies the company's clients (including Wyndham) as "named insureds" and as "insured owners," but Wyndham did not participate in its negotiation. Wyndham filed a counterclaim seeking coverage. The crash involved a plane rented by a Wyndham employee to attend a work-related meeting, but did not involve the charter company in any way. The court held that Wyndham was entitled to coverage. The Third Circuit reversed. New Jersey law allows reformation, on the basis of mutual mistake, against a party that did not participate in negotiation of a contract and the insurance company sufficiently pled mutual mistake. Although the contract appears to provide third parties with coverage when using aircraft without the charter company's involvement, both contracting parties believed that the language did not expand coverage to entities unaffiliated with the charter company, such as Wyndham. The premium went down with the addition of the language at issue because the intent was to limit coverage for to aircraft owned, used by, or at the direction of the charter company.

Developer refused to pay nearly $6.5 million under the prime contract ($5 million was due subcontractors) claiming deficient work. General contractor declined to pay a subcontractor, who sued on the surety bond. The surety asserted that term 6.f conditioned subcontractor's right to payment on contractor's receipt of payment. In the meantime, contractor settled with developer for $1 million--all it was able to pay--and subcontractor declined a pro rata share in return for a release of claims. The district court granted partial summary judgments in favor of subcontractor for an amount $91,790 less than the claimed $1,074,260. The Third Circuit reversed interpretation of the subcontract and rejection of surety's claim for proportional offset for legal fees incurred in the suit against developer, but affirmed denial of subcontractor's waiver claim, and remanded. The parties intended to share the risk of non-payment. Under 6f developer's payment to contractor is a condition precedent to contractor's obligation to pay subcontractor, yielding after six months to provide a mechanism that specifies when and for how much subcontractor may sue contractor. The contract created a mechanism for passing through subcontractor's remaining claims and pegging recovery to the amount that contractor received from developer for subcontractor's work.

The decedent, killed in a motorcycle accident in 2008, was covered by a life insurance policy, subject to the Employee Retirement Income Security Act, 29 U.S.C. 1101. The insurance company denied a claim by the decedent's widow, claiming that the decedent's anti-coagulant medications contributed to his death so that it fell within an exclusion for medical conditions. The district court concluded that the policy gave the company discretionary authority to determine eligibility and entered summary judgment in the company's favor. The Third Circuit reversed in part and remanded. Deferential review was not appropriate, given the language of the policy. The words "proof of loss satisfactory to Us," surrounded by procedural requirements, do not notify participants that the company has the power to re-define the entire concept of a covered loss on a case-by-case basis. The district court's interpretation of the medical exclusion, in favor of the company, was correct; the clause was not ambiguous.

Plaintiff purchased a credit disability insurance policy from defendant in connection with credit union financing of an automobile. Following an injury on the job, he received benefits in the form of credit union payments on the auto loan for about three years. The defendant then notified plaintiff that it would not continue to pay because he no longer met the definition of Total Disability under the policy. The district court certified a class action, found the definition of the term âTotal Disabilityâ ambiguous and construed it in favor the insured, entered an injunction that set up a claims review process for class members, then decertified the class. The Third Circuit affirmed with respect to the definition. The court vacated and remanded the rest of the judgment, holding that the court abused its discretion in issuing an injunction in which it retained jurisdiction over the class members' claims throughout the claims procedure process after the class was decertified.

A division of New Jersey's Department of Treasury purchased $300 million in preferred stock issued by the defendant, which later asked New Jersey to convert its preferred shares to common stock. New Jersey agreed, if the terms of conversion were as favorable as terms governing the exchange of other stockholders' preferred shares. Defendant agreed and in July 2008 the parties entered into a share exchange agreement with a forum selection clause providing that "exclusive jurisdiction . . . shall lie in the appropriate courts of the State [of] New Jersey." The state sued for breach and the defendant sought to remove the case to federal court. The district court held that the agreement waived the right to remove the pending litigation to the federal district courts in New Jersey. The Third Circuit affirmed, stating that federal courts are in the states, but not "of" the states.

The defendants (Connelly firm) represented plaintiff in his divorce until July 2005. In July 2006 plaintiff consulted attorney, Downey, who notified the Connelly firm of a malpractice claim in October. In March 2007 plaintiff signed an agreement to file suit, but Downey did not file. In February 2008 Downey notified the plaintiff that he was terminating representation and stated that the limitations period on the malpractice claim ran out before Downey began representation. In 2009 plaintiff filed a malpractice suit against the Connelly firm, under a contract theory, and against Downey. The district court entered summary judgment in favor of all defendants. The Third Circuit reversed and remanded claims against Downey, applying the "discovery rule" rather than the occurrence rule to negligence by the Connelly firm. Although plaintiff knew that certain witnesses were not called during a 2004 hearing, he claims that he relied on the firm's assurances and did not have constructive notice of negligence until a July 2005 hearing. The question of when the limitations period began to run was for a jury.