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Arc Properties, Inc. v. Landmark Realty, LLC

2006 WL 2473938 (N.J. Super. Ch. Div. 2006) (Unpublished)

LIS PENDENS — Where no competent evidence is presented in an action to support imposition of a constructive trust or any remedy other than for money or damages, a lis pendens against the property involved in the litigation, and filed pursuant to that action, must be discharged.

A developer that specialized in the development of retail properties considered itself the preferred developer for a drugstore chain. It would typically locate and purchase a parcel of land, and then lease property to the chain and other tenants. In this case, it engaged a broker to locate a property for the drugstore chain’s use. It claimed that the broker was to be paid a commission upon the consummation of a sale between the developer and a third-party seller that was procured by the broker.

The developer claimed that within an eight year period, it spent a great deal of time and expense with regard to conceptual planning with the prospective purchase of property procured by the broker, who allegedly was advised of the developer’s work product. Negotiations between the developer and the seller ultimately faltered during this term. At times, it even appeared the developer and the broker entered into a joint venture to purchase the property. Ultimately, the broker entered into its own contract with the seller to purchase the property. In its purchase of the property, the broker denied any business relationship with the developer. It claimed it did not have an exclusive brokerage agreement, and that it generally received his commissions from sellers. Prior to any closing on the sale, the broker offered the developer $200,000 to settle any issues related to the transaction. The offer was rejected.

The developer sued in the Chancery Division, seeking a permanent injunction, a constructive trust, and damages against the broker and the seller. It also filed a lis pendens. Both the broker and seller filed a motion to discharge the lis pendens.

The Court first stated that the purpose of filing a written notice for lis pendens is to enforce a lien upon real estate or to affect title, a lien or encumbrances to real estate. No notice of lis pendens may be filed in an action to recovery a judgment for money or damages only. The effect of the filing of a notice of lis pendens is to forewarn parties of a pending action concerning real estate and that a purchaser or mortgagee will take subject to the outcome of the lawsuit. Its also to prevent the improper transfer of title to real estate until a court has had time to examine the rights as advanced by the parties.

Before it could discharge the lis pendens, the Court needed to determine whether there was a probability that final judgment would be entered in favor of the filer of the lis pendens to justify its continuation. Therefore, the Court examined the record and found that the developer’s only remedy against the property seller would be money damages, as it, the developer, had no sales contract with the seller, and could not compel the court to transfer the property to it, or prevent the seller from exercising its right to sell the property to a third party rather than to the broker. Additionally, the developer would have no claim against the broker for any interest in the property to be purchased if the seller sold the property to a third party. However, the Court found that the developer appeared to have had a viable claim for imposition of a constructive trust on the property, though it found there was insufficient evidence in the record to sustain the developer’s allegations of breach of fiduciary duty, conversion, tortuous interference of contract, and conspiracy. Therefore, no remedy could likely be awarded. For that reason, the Court discharged the lis pendens, but pending resolution of the underlying litigation ordered that the property not be transferred by the broker (upon receipt of title at closing from the seller) to a third party.

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