Christine Ivaliotis v. Covered Bridge Capital, LLC ( 2024 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1744-22
CHRISTINE IVALIOTIS,
Plaintiff-Appellant,
v.
COVERED BRIDGE CAPITAL,
LLC, DEAN LOPSON, and D.J.
KEPLER,
Defendants-Respondents.
_____________________________
Argued September 30, 2024 – Decided October 11, 2024
Before Judges Sabatino, Gummer, and Berdote Byrne.
On appeal from the Superior Court of New Jersey,
Law Division, Monmouth County, Docket No.
L-3147-21.
Edward Hanratty argued the cause for appellant.
Raul J. Sloezen argued the cause for respondents.
PER CURIAM
This matter arises out of three successive litigation funding agreements
entered into between defendant Covered Bridge Capital, LLC ("CBC") and
plaintiff Christine Ivaliotis in 2016, 2018, and 2019. Pursuant to those
agreements, plaintiff received a total of $9,600.00 from CBC to help fund her
pursuit of personal injury cases arising out of an accident. After recovering the
first settlement in the personal injury cases, plaintiff paid CBC in full what she
owed, including interest and fees, under the first two agreements. After
recovering a second, and final, settlement in the personal injury cases, she
obtained from the bankruptcy court a discharge of the funds that she owed CBC
under the third agreement. She then filed the present lawsuit against CBC and
other individuals.
Plaintiff contends CBC violated the Consumer Fraud Act ("CFA"),
N.J.S.A. 56:8-1 to -227, and the Truth in Consumer Contract Warranty and
Notice Act ("TCCWNA"), N.J.S.A. 56:12-14 to -18, by allegedly engaging in
fraudulent lending practices and impermissibly purchasing an interest in
prejudgment personal injury proceeds. The trial court granted summary
judgment dismissing plaintiff's claims against CBC, and this appeal followed.
We affirm, principally because plaintiff has not shown she sustained a
compensable "ascertainable loss" as the result of a CFA violation by CBC, nor
does she qualify as an "aggrieved consumer" under the TCCWNA.
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I.
We summarize the following pertinent facts from the record, which we
have evaluated in a light most favorable to plaintiff as the non-moving party.
Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); see also Branch
v. Cream-O-Land Dairy, 244 N.J. 567, 582 (2021) (applying de novo on
appellate review the same legal standards that govern summary judgment
motions in trial courts).
Lawsuit Funding Agreements
Plaintiff suffered personal injuries as the result of an August 2015 motor
vehicle accident. She filed a negligence case against the vehicle's driver, as well
as an underinsured motorist ("UIM") case against her auto insurer. While her
lawsuits were pending, plaintiff entered into a series of three agreements to
obtain litigation funding from CBC.
On June 23, 2016, plaintiff and CBC entered into the first agreement,
pursuant to which CBC paid plaintiff $1,200.00. Payment to CBC was
contingent on plaintiff obtaining a recovery in her personal injury cases. Under
the contract terms, the amount owed to CBC was subject to an annual accrual
interest rate of 33%, consisting of 8.25% compounded every three months,
capped at 42 months. Plaintiff accepted those terms against the advice of her
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then-attorney, who thought the interest rate was too high.
Two years later, on August 22, 2018, plaintiff entered a second agreement
with CBC, in which CBC paid her an additional sum of $2,900.00. The amount
owed to CBC was subject to an annual accrual rate of 24%, consisting of 6%
compounded every three months, capped at 42 months. Payment to CBC was
likewise subject to plaintiff recovering money in her personal injury litigation.
Eventually, plaintiff settled her personal injury case against the driver for
$15,000.00. Thereafter, on January 15, 2019, plaintiff voluntarily paid CBC
$7,043.92, which was deemed payment in full for what plaintiff owed under the
first two funding agreements. Of the $7,043.92 paid to CBC, $2,943.92
comprised interest and fees.
Meanwhile, plaintiff continued to pursue her UIM claim against her auto
insurer. To help finance the litigation of that claim, on February 1, 2019,
plaintiff entered into a third agreement with CBC, receiving $5,500.00. The
amount owed to CBC under this final agreement was subject to an annual accrual
rate of 32% (16% compounded every six months, capped at 42 months).
The contracts included several representations, including, but not limited
to the following:
"[CBC] agree[s] to purchase from [plaintiff], and
[plaintiff] agree[s] to sell to [CBC], a portion of [her]
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Proceeds" referring to the proceeds from her "claim or
lawsuit, including appeals, arising from injuries
[plaintiff] suffered in a motor vehicle accident on or
about August 6, 2015."
"If [plaintiff's personal injury] Claim fails, [plaintiff]
owe[s] [CBC] no money."
"This is a non-recourse transaction."
"[Plaintiff] ha[s] not filed or anticipate[s] filing for
Bankruptcy protection. However, if at some point
during the life of [plaintiff's] Claim, [plaintiff] do[es]
file for Bankruptcy protection, [plaintiff] hereby
agree[s] to refund [CBC] the Amount Purchased from
that portion of the Proceeds which are by law
personally exempt from Bankruptcy; and, [plaintiff]
hereby authorize[s] and direct[s] [her] attorney or the
bankruptcy trustee to make payment for said refund
directly to [CBC]."
"If a binding judicial authority rules this Agreement
constitutes a loan of money, then the interest rate being
charged for this transaction shall be equal to the
maximum interest rate allowed by law."
"A necessary condition of this Agreement is that
[plaintiff] be represented by a licensed attorney."
"CBC shall have no right to and will not make any
decisions regarding the handling of [plaintiff's] claim
or any settlement or resolution of [plaintiff's] claim and
that the right to make those decisions remains solely
with [plaintiff] and [her] attorney."
"[Plaintiff's] attorney has also emphasized that this type
of transaction can be expensive and therefore should be
entered into only out of necessity."
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Following an arbitration in February 2021, plaintiff settled her UIM claim
for $45,000.00. She did not disburse any portion of that second settlement to
CBC.
Meanwhile, plaintiff had been in bankruptcy proceedings since July 2016,
the details of which we need not elaborate here. The only key aspect for our
purposes is that on July 29, 2021, plaintiff obtained an order from the
Bankruptcy Court, discharging her entire remaining debt to CBC. Having been
served with that discharge order, CBC has disclaimed any effort to collect the
$5,500.00, plus interest and fees, which plaintiff owed under the third contract.
In totality, plaintiff obtained $9,600.00 from CBC and paid CBC only
$7,043.92 for the 2016 and 2018 agreements, resulting in her obtaining a net
positive gain from the three transactions of $2,566.08.
This Case
On September 13, 2021, plaintiff filed the complaint in the present matter
against CBC and CBC officers Dean Lipson and D.J. Kepler. In January 2022,
plaintiff filed an amended complaint against the same defendants. In the
amended complaint she made the following allegations: Count I—violation of
the New Jersey Consumer Finance Licensing Act N.J.S.A. 17:11C-1 to -44,
claiming that "[d]efendants lent money and charged interest and fees in this state
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when they are not licensed to do so under N.J.S.A. 17:11C-41" and that the
"interest charged by the defendants . . . exceeded that permitted under New
Jersey Usury laws"; Count II—racketeering activity under N.J.S.A. 2C:41-1;
Count III—violation of the TCCWNA; Count IV—violation of the CFA; and
Count V—alleging the transaction "in 2016 is barred by New Jersey law and
was produced by deception about its legality and enforceability and designed to
deprive plaintiff of her property." Notably, plaintiff filed a certification
claiming she had not listed CBC as a creditor in her bankruptcy case because
she allegedly understood the contracts to involve the purchase of an asset, not a
loan.
Defendants moved to dismiss plaintiff's claims. In September 2022, the
trial court dismissed Counts I and II, reasoning that CBC is not a lender and the
contracts were not usurious. The court initially denied the dismissal of Counts
III, IV, and V, allowing plaintiff the opportunity to pursue discovery and further
define the cause of action in Count V.
Summary Judgment
Subsequently, plaintiff moved for partial summary judgment against CBC
as to liability on Count III. Defendants cross-moved for summary judgment on
Counts III, IV, and V. Plaintiff voluntarily dismissed Count V.
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In an order dated December 23, 2022, the trial court denied plaintiff's
motion for summary judgment and granted defendants' cross-motion for
summary judgment, dismissing all remaining claims. The court reasoned that
the transactions with CBC were not loans, and lawsuit financing agreements
assigning an interest in the proceeds of a personal injury claim are allowed under
New Jersey law. Hence, the court found CBC did not commit an
"unconscionable commercial practice" within the meaning of the CFA .
The court also held that plaintiff was not an "aggrieved consumer" under
the TCCWNA and had not suffered any "ascertainable loss" under the CFA
because she benefited from what the court described as a "windfall" of $2,556.08
by discharging through bankruptcy the remaining amount she owed to CBC. 1
The court denied plaintiff's motion for reconsideration. This appeal
ensued.
Plaintiff argues that CBC participated in three forms of unlawful conduct
that violated the CFA and the TCCWNA: (1) CBC made loans of less than
$50,000.00 without a license, in alleged violation of N.J.S.A. 17:11C-1; (2) CBC
1
Defendants had also moved for summary judgment based upon the grounds of
equitable estoppel, fraud, and unclean hands, but the court did not reach these
arguments as it dismissed the complaint on other grounds.
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committed usury by providing loans with interest rates in excess of what is
permitted under N.J.S.A. 2C:21-19; and (3) CBC illegally purchased an
assignment of an interest in a prejudgment personal injury claim.
Plaintiff further claims she suffered an ascertainable loss under the CFA
and is an aggrieved consumer under the TCCWNA because she paid CBC
$7,043.92 for the 2016 and 2018 contracts, including substantial interest and
fees.
In response, defendants assert the contracts are contingent, non-recourse
advancements that do not constitute loans subject to the CFA. They further
argue that obtaining an assignment interest in the proceeds of a personal injury
claim is permitted by law. Further, they contend plaintiff did not suffer any
ascertainable loss, as she is net positive $2,566.08 from her three transactions
with CBC.
II.
Our analysis of these issues is straightforward.
To present a prima facie claim under the CFA, a plaintiff must establish
three elements: "(1) unlawful conduct by defendant; (2) an ascertainable loss
by plaintiff; and (3) a causal relationship between the unlawful conduct and the
ascertainable loss." Cox v. Sears Roebuck & Co., 138 N.J. 2, 24 (1994). We
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recognize that, given the Act's remedial purposes, courts should construe its
provisions broadly and liberally in favor of consumers. Papergraphics Intern.,
Inc. v. Correa, 389 N.J. Super. 8, 12 (App. Div. 2006).
A critical prerequisite for maintenance of a private action to remedy a
CFA violation is that "[the] plaintiff must present a claim of ascertainable loss."
Weinberg v. Sprint Corp., 173 N.J. 233, 251 (2002). Ascertainable loss is a
"standing" requirement. Ibid.A plaintiff is required to "plead a claim of ascertainable loss that can
survive a motion for summary judgment." Id. at 253. Once this threshold
standing requirement is satisfied, the plaintiff can pursue "all available remedies
. . . even if the plaintiff ultimately loses on his damage claim but does prove an
unlawful practice under the Act." Ibid.
In Thiedemann v. Mercedes–Benz USA, LLC, 183 N.J. 234, 248 (2005),
our Supreme Court instructed that, under the CFA, "a private plaintiff must
produce evidence from which a factfinder could find or infer that the plaintiff
suffered an actual loss." (Emphasis added). An ascertainable loss under the
CFA is one that is "quantifiable or measurable," not "hypothetical or illusory."
Ibid. A plaintiff can establish an ascertainable loss by demonstrating either an
out-of-pocket loss or a deprivation of the benefit of one's bargain. Ibid. "Out-
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of-pocket damages represent the difference between the price paid and the actual
value received" when "the products purchased were worthless or unsuitable for
their intended use" and plaintiff "will spend additional funds following their
purchases to make the items usable for their intended purpose." Robey v.
SPARC Grp. LLC, 256 N.J. 541, 548, 560 (2024). Ascertainable loss need not
be exclusively limited to an "out-of-pocket loss to the plaintiff." Thiedemann,
183 N.J. at 248. "An estimate of damages, calculated within a reasonable degree
of certainty will suffice to demonstrate an ascertainable loss." Id. at 249.
"In determining the sufficiency of plaintiff's assertions about an
ascertainable loss, [the appellate court is] required to consider the scope of
[plaintiff's] action." Perkins v. DaimlerChrysler Corp., 383 N.J. Super. 99, 106
(App. Div. 2006). We have done so here, having described the scope of
plaintiff's claims above.
Critically, ascertainable loss should be calculated at the time the
complaint is filed. See D'Agostino v. Maldonado, 216 N.J. 168, 194 (2013)
(finding that "[i]n some circumstances, if the defendant or a non-party takes
action to ensure that the plaintiff sustains no-out-of-pocket loss or loss of value
prior to litigation, then plaintiff's CFA claim may fail") (emphasis added); see
also Perkins, 383 N.J. Super at 106 (finding that for the consideration of whether
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there was ascertainable loss related to a vehicle issue, the court must consider
whether plaintiff generated any "actual out-of-pocket losses during the warranty
period, or by the time the complaint was filed . . . or even when [plaintiff]
responded to the motion to dismiss filed nearly one year after the
commencement of the action") (emphasis added).
Here, the time for measurement of ascertainable loss is September 13,
2021, when plaintiff filed her complaint against defendants. As of that date,
plaintiff did not owe defendants any money. In fact, as the trial court noted,
plaintiff had reaped a net gain of $2,566.08. Her alleged "loss" from her
dealings with CBC was non-existent.
Plaintiff argues that we should ignore the gain she made from the third
funding agreement and focus instead on the nearly $3000.00 she paid in
combined interest and fees under the first and second agreements. Even if we
viewed her claim in that myopic fashion, plaintiff still has not set forth an
ascertainable loss caused by a CFA violation.
Plaintiff's CFA claim conceptually hinges on her assertion that her
funding agreements entailed "loans" that required CBC to be licensed by the
Department of Banking and Insurance and subjected CBC to the interest rate
caps imposed by consumer loan usury laws. Yet, this premise is wrong. As the
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trial court correctly noted, litigation funding agreements have been legally
classified as not being loans.
A loan is defined as "a grant of something for temporary use; A thing lent
for the borrower's temporary use; a sum of money lent at interest." Black's Law
Dictionary, p. 1120 (2024). The recipient of the loan must be unconditionally
obligated to make repayment. Karns Prime & Fancy Food, Ltd. v. C.I.R., 494
F.3d 404 (3d Cir. 2007).
By contrast, Black's Law Dictionary defines "litigation funding" as "[a]n
agreement between a litigant and third party to finance a lawsuit in exchange for
a share of any recovery. Litigation funding is a type of investment in a lawsuit,
typically for the plaintiff." Black's Law Dictionary, p. 1117 (2024) (emphasis
added).
This distinction between loans and the proceeds of litigation funding
agreements has been judicially recognized. In Dopp v. Yari, 927 F. Supp. 814(D.N.J. 1996), the district court expressly addressed "the question of the
enforceability of a contract for the financing of litigation in exchange for a
division of the final proceeds." Id. at 814-15. The parties in Dopp entered into
three litigation financing agreements. After plaintiff was provided with over
$700,000.00 in financing, he claimed the agreements violated the New Jersey
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usury statute for fees associated with loans, specifically arguing "that the
agreement in question is not an agreement establishing the division of proceeds
from a joint undertaking but, rather, a usurious loan in excess of the legal limit."
Id. at 818, 820. The district court concluded "the transaction had all the
markings of a joint undertaking and not a loan." Id. at 824.
In this same vein, the Local Civil Rule of the United States District Court
addressing the disclosure to defendants of such third-party funding
arrangements describes a litigation financing agreement as a "non-recourse . . .
contingent financial interest" that is "not in the nature of a personal or bank loan,
or insurance." L. Civ. R. 7.1.1 (emphasis added).
Plaintiff's argument, that we must treat her transactions with CBC as
loans, is belied by her own certification regarding her bankruptcy filing, in
which, as we noted above, she attested they were not loans. Plaintiff is judicially
estopped from having it both ways. See Kimball Int'l, Inc. v. Northfield Metal
Prods., 334 N.J. Super. 596, 606 (App. Div. 2000) (judicial estoppel generally
precludes a party from advocating "a position contrary to a position it
successfully asserted in the same or a prior proceeding").
Relying on older case law predating our state's modern constitution,
plaintiff argues that litigation funding agreements must be void and deemed an
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unconscionable commercial practice because a personal injury action is not
assignable. However, our courts more recently have determined that an
assignment of proceeds arising from a civil judgment or settlement is
permissible. Ladenheim v. Klein, 330 N.J. Super. 219 (App. Div. 2000); Cronin
v. McKim-Gray, 353 N.J. Super. 127 (App. Div. 2002); see also N.J.S.A. 2A:25-
1 (declaring that "all judgments and decrees recovered in any of the courts of
this State or of the United States . . . and all choses in action arising on contract
shall be assignable").
Here, CBC was contingently assigned a right to be paid out of a tort or
UIM recovery by plaintiff if, and only if, one was obtained. CBC was not
assigned control of those lawsuits or claims. Plaintiff remained in control of her
cases.
Furthermore, the Advisory Committee on Professional Ethics issued an
opinion in 2001 instructing that "a lawyer may ethically refer a client to a factor
[litigation funding company] concerning a possible advance against an
anticipated personal injury judgment or settlement." Opinion 691, 163 N.J.L.J.
220 (2001). We agree with defendants that it would be "absurd and illogical" to
have an "arm of the Court" permit an attorney to assist a client in an "illegal"
act, i.e., "refer a client to a funding company, review the documents and sign
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them, and then have the [c]ourt permit a plaintiff to sue the funding company,
while exonerating the attorney."
In short, the litigation funding agreements at issue here were not "loans"
subject to consumer licensing and usury laws. Nor were they "unconscionable
commercial practices" violative of the CFA. Any alleged "ascertainable loss"
sustained by plaintiff was not caused by a CFA violation.
We reach a comparable conclusion as to plaintiff's TCCWNA claim. To
state a claim under the TCCWNA, plaintiff must establish: (1) defendant is a
seller, lessor, creditor, lender, bailee, or assignee; (2) who, in writing, entered
into a consumer contract or gave or displayed a consumer warranty, notice, or
sign; (3) containing a provision that violates a consumer's clearly established
legal right; and (4) plaintiff is an aggrieved consumer. N.J.S.A. 56:12-15
(emphasis added); Robey, 256 N.J. at 563.
As to that last element, the Supreme Court in Robey recently clarified that
the term "aggrieved consumer" under the TCCWNA is harmonious with the
concept of a plaintiff who suffers an "ascertainable loss" under the CFA. Id. at
549. Without an ascertainable loss under the CFA, alleged violations of the
CFA cannot form the basis of a violation of a "clearly established legal right"
under the TCCWNA. Id. at 551. If a plaintiff's alleged harm under the
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TCCWNA is premised on the same allegations as a CFA claim, the court must
find the plaintiff incurred an ascertainable loss of money or property under the
CFA to move forward with the TCCWNA claim. Id. 564-65.
Based on the analysis we set forth above on plaintiff's CFA claim, her
TCCWNA claim likewise fails for lack of viable proof of an ascertainable loss
caused by a consumer fraud violation. She made money from her dealings with
CBC, with the help of a bankruptcy discharge after she settled her personal
injury cases for sums exceeding what she owed CBC. She took advantage of
the circumstances, to CBC's detriment. She lacks standing to call herself an
"aggrieved consumer," both as a matter of law, a matter of equity, and common
sense.
We have considered all other arguments raised by plaintiff and they lack
sufficient merit to warrant discussion. R. 2:11-3(e)(1)(E).
Affirmed.
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