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APPELLATE DIVISION AFFIRMS TRIAL COURT’S DECISION AWARDING PUBLIC ADJUSTING FEES TO FORMER LLC MEMBERS

February 11, 2019

ROBERT B. SPAWN reports on a recent unpublished decision from the Superior Court of New Jersey, Appellate Division.

A recent New Jersey case involved a dispute between four members of a public adjusting business (the “LLC”) originally formed in 1999.  Each member obtained business for the LLC through solicitation or referral of clients, and all public adjusting fees collected from the clients were paid directly to the LLC. 

The managing member (“SK”), pursuant to authority given to him by the LLC’s operating agreement, instituted a procedure requiring a member to submit an expense report with supporting receipts in order to receive reimbursement for business expenses.  Three members of the LLC (Defendants SK, JS, and JT) routinely submitted such expense reports and received reimbursements, but the remaining member (Plaintiff AV) did not submit any expense reports or seek reimbursement in the usual course of business.  However, in 2008, Plaintiff presented Defendants with a handwritten document listing unpaid business expenses in the amount of $275,000 for which he sought reimbursement.  The LLC did not reimburse Plaintiff for these claimed expenses in 2008 or at any point thereafter, and, consequently, Plaintiff withheld approximately $116,000 in public adjusting fees from the LLC.

In 2012, the members agreed to dissolve the LLC, and Plaintiff then filed a complaint on August 20, 2015, seeking, among other things, an accounting and audit of the LLC.  Defendants, in response, filed a counterclaim seeking damages with respect to the $116,000 in public adjusting fees that Plaintiff had withheld from the LLC.  The trial court dismissed Plaintiff’s complaint, and a bench trial was subsequently held on Defendants’ counterclaim on April 24 and 25, 2017.

The trial judge reasoned that Plaintiff had not complied with the procedures established for expense reimbursement (i.e., submitting an expense report with receipts), and was thus not entitled to any of his $275,000 in claimed business expenses.  The judge also noted that Plaintiff acknowledged in his testimony that the $116,000 in public adjusting fees, per the terms of the operating agreement, was undoubtedly payable to the LLC.  Therefore, the lower court held that Plaintiff was not entitled to offset his claimed business expenses against money he owed to the LLC, and that Defendants were entitled to the $116,000 wrongfully withheld by Plaintiff. 

On appeal, Plaintiff presented the defenses of laches, estoppel and waiver for the first time.  The Appellate Division declined to address any of these arguments, explaining that these issues were not properly brought before the trial court, and were thus not within the scope of the appeal.  The Court noted that, while Plaintiff did plead these defenses in his answer to Defendants’ counterclaim, the mere one-time mention of laches, estoppel, and waiver in a responsive pleading, without more, was insufficient to preserve the defenses throughout the span of the litigation.  Accordingly, the Appellate Division affirmed the trial court’s judgment in favor of Defendants.

Please contact Robert B. Spawn if you have any questions or need assistance in connection with this subject.