Safeguarding Your Interest In Real Estate During Litigation

Litigation Alert

February 26, 2015

Gerd W. Stabbert, Jr.

Gerd W. Stabbert, Jr.


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Litigation

Lis Pendens Offers Adequate Protection, Precluding Entry of Preliminary Restraints

In Arlington 182, LLC, et al v. Judah Langer, et al., Docket No. BER-C-339-14 (N.J. Ch. Div. Feb. 6, 2015), plaintiffs sought preliminary restraints prohibiting the transfer or encumbrance of property in which they claimed an interest. Plaintiffs had also filed a lis pendens against the property to prevent further transfers. The court denied plaintiffs’ request for preliminary restraints, in part, because they filed the lis pendens, which protected plaintiffs by providing notice of their lawsuit that sought to affect title to the property.

In Arlington 182, LLC, Elena Gambourg (Elena) and plaintiff Alexander Danilenko (Danilenko) were the sole members of plaintiff Arlington 182, LLC (Arlington), which was created by Elena’s son Roman Gambourg (Roman). Arlington purchased certain property that was to be rehabilitated and rented for profit. A real estate investment company, defendant White Rock, later purchased the property by way of a transfer of Elena’s and Danilenko’s interest in Arlington. Specifically, Elena, and Roman, acting as attorney in fact for Danilenko, executed a contract transferring their interest in Arlington to White Rock, which paid $1,235,000.00 for Arlington. After the purchase, White Rock cured violations on the property, paid the carrying costs of the property, and later sold the property to other defendants.

Danilenko argued that he did not authorize Roman to act on his behalf, he did not consent to sell his interest in Arlington, and he never received compensation for his interest. Therefore, he and Arlington sued multiple defendants alleging claims of conversion, fraud, constructive trust, specific performance and recessions, and sought to temporarily restrain defendants from transferring or encumbering the property. Under New Jersey law, to obtain such preliminary restraints plaintiffs were required to show: (1) irreparable harm, (2) well settled underlying law, (3) material facts are not markedly disputed, and (4) the balance of the hardships favors issuance of the restraints.

After analyzing these factors, the court denied plaintiffs’ request for preliminary restraints prohibiting the transfer or encumbrance of the property. Under the first factor, harm is irreparable when it cannot be remedied by money damages. The court found no irreparable harm because the “lis pendens offers adequate protection to Plaintiffs in their attempt to maintain the status quo.” Id. at 9. In evaluating the second and third factors, the court recognized the law to be well settled, but held there existed disputed material facts -- particularly as to whether Danilenko consented to the property sale. As to the fourth factor, the court reiterated its findings as to the lack of irreparable harm including that “[a] lis pendens offer plaintiffs meaningful protection.” Id. at 11. The court, therefore, declined to issue preliminary restraints enjoining the transfer or encumbrance of the property.

Although the court denied plaintiffs’ request, its holding exemplifies the power and impact of a lis pendens. A lis pendens is a powerful tool that creates a great burden on property. Once filed, it becomes nearly impossible for an owner to transfer or encumber the property. When title is in question, buyers do not want to purchase a property and lenders do not want to finance a property. Plaintiffs lost their request for preliminary restraints, but the lis pendens protects their claimed interest in the property during the dispute.

For more information, please contact Gerd W. Stabbert.