Filing a Lis Pendens in New Jersey? Proceed with Caution

On February 3, 2022, New Jersey’s Appellate Division issued a decision for publication addressing the scope of the common law litigation privilege and, among other things, whether that privilege attaches to the filing of a notice of lis pendens. This article will explore the basic concepts of portions of this somewhat complicated case.

Let’s start with the basics.

• Litigation Privilege – protects a party engaged in a legal proceeding from claims of defamation based on communications or submissions to a court relating to that legal proceeding.
• A Notice of Lis Pendens – an official notice to the public filed with the county land records that a lawsuit involving a claim to real estate has been filed.
• When a litigation is filed that may affect the ownership or other rights in real property, the party filing such action must also file a notice of lis pendens with the county clerk of the county in which that real property is located.

Why? The notice of lis pendens puts the public on notice that the filing party is seeking to “enforce a lien upon real estate or to affect the title to real estate or a lien or encumbrance thereon.”  A party acquiring an interest in that real property after the filing of a lis pendens notice takes its interest subject to the outcome of the litigation named and described in the lis pendens notice.

Now to discuss the recent Appellate Division decision…

The decision in Brown v. Brown, Docket No. A-0384-21 (February 3, 2022), is rooted in a probate litigation.  The decedent owned real property in Asbury Park that was leased to a Burger King.  Under a settlement agreement, the decedent’s wife was to receive payments for life out of the rental income from the property and decedent’s children took ownership of the property.  Many years later, while the children were attempting to sell the property, the wife filed a lawsuit to enforce the settlement, along with a notice of lis pendens – a red flag for a property for sale.

The court dismissed the wife’s case and the associated lis pendens was discharged. The children later sold the property – then turned around and sued the wife for, among other things, tortious interference with contractual relationship, claiming her lawsuit and lis pendens notice caused the ultimate sale price to decrease substantially.

After the wife applied to the court to dismiss the children’s claims against her, the trial court held, among other things, that the litigation privilege did not apply at all to her notice of lis pendens and allowed the tortious interference claims to stand.

On appeal, however, the Appellate Division explained that the common law litigation privilege does in fact apply to statements contained within a notice of lis pendens, which merely recite the basic allegations of the complaint in the underlying litigation (which are protected by the privilege). But that privilege does not apply to the act of filing the notice of lis pendens. Thus, the filing party is not protected by privilege from claims of an unauthorized, inaccurate or false filing of a notice of lis pendens.

In reviewing the facts of the case, however, the Appellate Division determined that the wife did have the right to file her notice of lis pendens.  The court found that the filing was proper – and not tortious – because the wife, although seeking money damages for breach of a settlement agreement (not an appropriate basis to file a lis pendens), also sought to impose a constructive trust or equitable lien on the property’s sale proceeds and she had an interest in the lease encumbering the real property.

Then the court’s decision took a twist.

In a footnote, the court recognized other possible arguments, not raised on appeal, that could possibly be made to defend completely against a subsequent action for damages resulting from the filing of a lis pendens notice:

(1) the lis pendens statutory scheme presupposes that a challenge to the filing of a lis pendens notice occur in the action identified in the notice, so the entire controversy doctrine may bar a subsequent lawsuit relating to the lis pendens notice filing; and

(2) because the filing of a notice of lis pendens is governed by statute, and the mechanism by which a party may seek to discharge the notice is contained within the statutory scheme, which does not provide for the recovery of damages, common law claims for damages may be preempted by the statutes.  It should be noted that construction lien claims in New Jersey, also filed with the county clerk against the real property land records, are also governed by a specific statutory scheme, and, unlike the lis pendens statutes, that scheme specifically provides for the possible recovery of damages and attorneys’ fees to an aggrieved party if the lien was improperly filed, as more particularly set forth in the Construction Lien Law. Thus, the legislature could provide for such remedies in the lis pendens statutes, but as yet, has not.

Why is this footnote interesting?  If the arguments in the footnote were to be adopted by the courts, then you may never be liable for damages for the wrongful filing of a lis pendens notice unless the statute is amended. If the statutory scheme does actually preempt all common law claims relating to the filing of a lis pendens notice, then there seemingly would be no situation in which the wrongful filing of a notice of lis pendens may result in liability for damages – despite there being no litigation privilege protecting the filing of a lis pendens notice.  However, as the court did not decide that issue, parties filing notices of lis pendens should proceed with caution where there is an issue as to whether such a filing is appropriate in connection with the underlying litigation.

Key Takeaways

1. When to file a lis pendens, and when not to.
   1. When to file: When you have filed a legal action to “enforce a lien upon real estate or to affect the title to real estate or a lien or encumbrance thereon.” This language was read fairly broadly by the Appellate Division in Brown.
   2. When not to: When the underlying legal action does not seek relief that would implicate a legal or equitable interest in real property.
2. Potential consequences to filing lis pendens that may ultimately be improper.
   1. Because the act of filing a lis pendens is not protected by the litigation privilege, if a lis pendens is wrongfully filed, it could subject the filing party to a claim for damages by a party that has been injured by the filing.
   2. However, in the Brown decision, the court noted that, although the issue was not argued in that appeal, it is possible that a court may find that an action or claim for damages was not permitted at all based on the wrongful filing of a lis pendens because the lis pendens statute provides a remedy for a party to seek an expedited discharge of the lis pendens – but does not provide for the recovery of damages.