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Bernstein v. Shulman

A-5546-08T2 (N.J. Super. App. Div. 2010) (Unpublished)

LANDLORD-TENANT; COLLATERAL ESTOPPEL — The findings of a landlord-tenant court may collaterally estop the same parties in a future action if the later tried issues are identical, were litigated in the landlord-tenant proceeding where determination of the issue was essential to the outcome, where the party against whom collateral estoppel is asserted is a party to the landlord-tenant action, and the landlord-tenant court issued a final judgment on the merits.

A landlord leased a basement apartment. Long before its tenant moved in, the landlord applied to the municipal zoning board of adjustment to expand the non-conforming use of its property to allow construction of the basement apartment. The zoning board denied the variance, but the landlord constructed the basement apartment anyway. The tenant was unaware that the apartment was illegal prior to moving in.

As a result of severe rain storms, the landlord’s basement flooded and the tenant was forced to evacuate the apartment. While she was out of the apartment, she was the victim of a car jacking and injured her legs. She was unable to gain access to the basement apartment because of her injuries. In addition, there were continuing mold and leakage problems in the basement as a result of the flooding. After the storm, state and local inspectors examined the landlord’s property for storm damage and discovered the illegal basement apartment. The landlord was ordered to dismantle it. The tenant began withholding rent, because, as she testified in several eviction trials, she believed the apartment was illegal.

The landlord filed an eviction complaint for nonpayment of rent, but later dismissed its suit. As a result of municipal violations pertaining to the illegal apartment, the landlord disconnected the basement stove, capped the gas line, and removed the refrigerator. The landlord then filed a second eviction complaint against the tenant, this time for breaching the lease by not residing in the premises. In the second eviction complaint, the landlord-tenant court concluded that before it could grant a judgment for possession, the landlord had to provide the tenant with relocation assistance equal to six-month’s rent. The court left the parties to pursue any monetary claims in a separate court action, including whether or not the landlord was entitled to an offset against the relocation allowance for unpaid rent.

The landlord did not pursue the second eviction, but instead filed a collection complaint for unpaid rent. The tenant, in a separate action, sought relocation expenses. The two cases were consolidated. The lower court denied the landlord’s claim for unpaid rent because the leased premises were illegal. However, the lower court also denied the tenant’s request for relocation expenses and only awarded the return of her security deposit. The tenant appealed. The Appellate Division reversed and remanded.

The Court noted that the statute pertaining to relocation expenses, N.J.S.A. 2A:18-61.1h(a) provides that when a tenant is displaced because of an illegal occupancy, the tenant is entitled to reimbursement of relocation expenses in an amount equal to six times the monthly rent. The question in this case was whether the tenant’s main decision to move out was due to the illegality of the apartment or was due to her injuries sustained in the car jacking. The tenant argued that because, in the second eviction action, the landlord-tenant court found that the reason for her leaving was due to the illegality of the apartment, the lower court in the collection complaint should have adopted that finding. Instead, it ruled the tenant had vacated the premises because the flooding rendered the apartment uninhabitable and because of her injuries, not because the apartment was illegal. As a result of that determination, the lower court found that the tenant was not entitled to relocation expenses.

On appeal, the Appellate Division was disturbed by the two disparate findings based on the same set of facts and evaluated whether the doctrine of collateral estoppel should have been applied to bar a relitigation of the findings of the landlord-tenant court that the tenant had vacated because the apartment was illegal. The Court noted that the doctrine of collateral estoppel requires: (a) that the later tried issues are identical to the issues in the prior proceeding; (b) the issues were litigated in the prior proceeding; (c) the prior court issued a final judgment on the merits; (d) the determination of the issue was essential to the outcome of the prior case; and (e) the party against whom collateral estoppel is asserted was a party to the prior action.

In this case, the Court found that all the elements for collateral estoppel were present. The landlord-tenant court had found that the main reason the tenant vacated was that the apartment was illegal, that the statute required the landlord to pay the tenant relocation assistance, that the landlord-tenant action was hotly contested, and that the issues were actively litigated. The landlord-tenant court’s decision was a final decision on the merits. However, the Court found that even though all of the elements of collateral estoppel were present, there were still equitable considerations. Since the Court did not have the transcripts from the eviction trial, the Court remanded the matter to the lower court and gave it the discretion to compel the parties to order a transcript so that the lower court could evaluate the eviction trial to make sure the parties had ample time to supply their proofs and to make sure that the parties were aware about the potential consequences of a decision in the tenant’s favor.

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