Opinion ID: 399428
Heading Depth: 2
Heading Rank: 1

Heading: Whether the Lis Pendens Constitutes a Taking.

Text: 93 The history of the doctrine of lis pendens has been set forth in careful detail by Judge Sloviter. At common law, the filing of a suit affecting property imparted constructive notice of that suit to the whole world. A purchaser who acquired the property during the pendency of the action took subject to the outcome of the litigation. See Haughwout & Pomeroy v. Murphy, 22 N.J.Eq. 531, 544 (N.J.1871); Wendy's of South Jersey, Inc. v. Blanchard Management Corp., 170 N.J.Super. 491, 496-97, 405 A.2d 1337, 1339-40 (Ch.Div.1979). Restrictions on the alienability of property, property which was the subject of litigation, arose from the filing of the suit itself. 94 The fiction of imputing knowledge of pending litigation to an innocent purchaser resulted in hardship and injustice. To remedy that problem, in 1902 the New Jersey legislature adopted the predecessor to its current lis pendens statute. The statute altered the common law by providing for the actual filing of a notice of lis pendens. N.J.Stat.Ann. § 2A:15-6 (West) (1952). As a result, a purchaser could easily determine whether the property was the subject of litigation. Even if he did not, the statute bound the purchaser to constructive knowledge of the lawsuit. N.J.Stat.Ann. § 2A:15-7 (West) (1952). 95 The enactment of the statute did not change the basic nature of the doctrine of lis pendens. Both before and after the statute was enacted, a purchaser of property took that property subject to the outcome of pending litigation. It remained the litigation, and not the notice, that prevented the unencumbered transfer of property. The statute eliminated the harshness that resulted from application of the common law doctrine of constructive notice. 96 Appellees concede that the lis pendens statute applies under the facts of this case. See Polk v. Schwartz, 166 N.J.Super. 292, 399 A.2d 1001 (App.Div.1979). In fact, the essence of appellees' contention is that the statute works too well and that its property has been taken. The basic inquiry then must be whether the statute acts to deprive appellees of a constitutionally protected right. If it does not, procedural due process guarantees are not implicated and our inquiry is ended. 97 Judge Sloviter's opinion fully explains the effect of the statute: the statute sets forth the required contents of the notice of the litigation; 2 it provides for constructive notice to the world of pending litigation; 3 it provides for the discharge of the notice of lis pendens if the underlying action is not prosecuted diligently; 4 it allows discharge of the lis pendens after the passage of three years; 5 it allows the court to discharge the notice if defendant posts sufficient security with the court; 6 and finally, it allows the discharge of a lis pendens when a judgment is entered for defendant, 7 a judgment for plaintiff is paid or settled, or the action is settled or abandoned. 8 98 To me, however, the answer to the question before us (i.e., whether there has been a deprivation of a constitutionally protected right) is best seen from an analysis of what the filing of the lis pendens did not do with respect to the Edison property. There was no deprivation of possession or of any manner of use or enjoyment of the realty. Profits earned from Fedders' operations remained in the exclusive possession of Fedders. Fedders was (and remains to this day) free to sell the property. In spite of this, the district court ruled that the filing of a lis pendens is a taking of property, and that there had been a taking of something of worth since Fedders could not convey free of plaintiff's claims. 519 F.Supp. at 1260. 99 I disagree with the conclusion of the trial court that the lis pendens effected a taking. The fact is that if something of worth was taken, it was taken by the suit itself. It is no doubt true that a prospective purchaser would be made cautious by the notice of lis pendens, but that purchaser would be no more cautious than if he had obtained notice of the Chrysler suit by any other means. It is the underlying claim and not the notice that would make a buyer cautious. The statute acts only to provide a means by which a potential purchaser can be assured of actual notice of a claim. Under the traditional doctrines of notice and bona fide purchaser, a buyer with notice of Chrysler's claim would-even without the lis pendens-take subject to the equities Chrysler asserts. Wood v. Price, 79 N.J.Eq. 620, 622, 81 A. 983, 984 (N.J.1911). The statute merely replaced the common law fiction of constructive notice with a more realistic means of ensuring actual notice. N.J.Stat.Ann. § 2A:15-8 (West) (1952). 100 Appellees ask this court to find that for all practical purposes, they cannot sell their property because of the lis pendens. In this regard they submit the affidavit of a title expert who states that during the pendency of a filed lis pendens, a title insurance company would not insure title without an exception for the claim of which the lis pendens is notice. Appellees' argument is not compelling. This is the same treatment afforded by title companies to easements, restrictive covenants and liens such as mortgages. The title company does not effect a taking by making these exceptions. 9 101 Thus, if there is a taking at all in this case, it results not from the operation of the lis pendens statute, but from the doctrine that any purchaser with notice takes the property subject to the underlying claim. We must ask, then, whether Fedders has the right to convey its property clear of Chrysler's claims. If such a right exists, and, as Fedders asserts, the pending litigation prevents it from exercising that right, then we would be compelled to hold that the mere institution of litigation constitutes a taking of something of worth. A holding to that effect would be tantamount to stating that the owner of real estate has either a constitutional right not to be sued at all if the suit concerns real estate, or a constitutional right to sell that real estate as if there were no litigation, even though interests in the property were disputed and in the process of being adjudicated. No such rights exist. See Wood v. Price, 79 N.J.Eq. 620, 81 A. 983 (N.J.1911); Wendy's of South Jersey, Inc. v. Blanchard Management Corp., 170 N.J.Super. 491, 406 A.2d 1337 (Ch.Div.1979). 102 Appellees do not ask us to go so far. They ask us only to strike the statute so that it can be modified by the legislature. Appellees contend that, as now worded, the statute gives plaintiffs unfair leverage: by filing a suit and a corresponding notice of lis pendens, plaintiffs can encumber a defendant's property for up to three years-virtually forcing a favorable settlement with the property owner. 103 Certainly appellees cannot claim that a meritorious suit gives a plaintiff unfair leverage. As discussed, a property owner has no right to be free from the burdens imposed by such a claim. To the extent that leverage is obtained by the filing of a meritorious suit, such leverage is not unfair. Indeed, meritorious claims have the natural and desirable effect of inducing settlements in all types of litigation. 104 If, on the other hand, the underlying claim is frivolous, the property owner has numerous adequate remedies. The statute allows a lis pendens to be discharged for failure to prosecute diligently, for good cause or by summary judgment. Further, the property owner can remove the lis pendens by posting a bond or other security with the court. Finally, appellees have the right to sue for malicious prosecution and abuse of process. 105 This comprehensive scheme of protecting an individual's property rights has led most courts that have considered this issue to find that no taking results from the filing of a lis pendens. See, e.g., Batey v. Digirolamo, 418 F.Supp. 695 (D.Hawaii 1976); Debral Realty, Inc. v. DiChiara, 420 N.E.2d 343 (Mass.Sup.J.G.1981); George v. Oakhurst Realty, Inc., 414 A.2d 471 (R.I.Sup.Ct.1980); Empfield v. Superior Court, 33 Cal.App.3d 105, 108 Cal.Rptr. 375 (1973). Each of the statutes reviewed was essentially the same as the New Jersey statute. Appellees cite only one decision in which a state lis pendens statute was held unconstitutional. Kukanskis v. Griffith, 180 Conn. 501, 430 A.2d 21 (1980). 10 The Connecticut court in Kukanskis and the district court in this case followed the line of cases beginning with Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969), and including Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972) and North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601, 95 S.Ct. 719, 42 L.Ed.2d 751 (1975). Each of these cases involved the complete deprivation of a property owner's use and possession of personal property. There is no such deprivation here. Reliance on these cases is therefore inappropriate. 106 Appellees' reliance on a line of cases holding non-possessory prejudgment real estate attachments unconstitutional is similarly misplaced. In Winpenny v. Krotow, 574 F.2d 176 (3d Cir. 1978), we ruled that the Pennsylvania Municipal Claims and Tax Liens Act, which permitted a municipality to create a lien on an individual's property by filing a claim without a prefiling hearing, is not unconstitutional, 11 contrary to Terranova v. Avco Financial Services of Barre, Inc., 396 F.Supp. 1402 (D.Vt.1975) (prejudgment real estate attachment unconstitutional as violative of due process). Even assuming that we would not follow Winpenny, the non-possessory real estate attachment cases are inapplicable to the issue before us. In each of the cases cited by appellees, 12 the attachment acted to create a right in property which did not previously exist, whereas a lis pendens creates no rights in property. 107 The decision in Spielman-Fond, Inc. v. Hanson's, Inc., 379 F.Supp. 997 (D.Ariz.1973) (three-judge court) (per curiam), aff'd mem., 417 U.S. 901, 94 S.Ct. 2596, 41 L.Ed.2d 208 (1974), provides clear support for the view that there was no deprivation here. In Spielman-Fond, a mechanic's lien, which left the property owner with the use, possession and ability to alienate the realty, was held not to take or deprive the owner of its property. Appellees contend that, because a mechanic's lien is based upon an implied underlying agreement between the parties, Spielman-Fond is distinguishable from the instant case. Appellees can cite no case involving real estate which has distinguished Spielman-Fond on these grounds. Further, our holding in Winpenny, and the Ninth Circuit's holding in In re Northwest Homes of Chehalis, Inc., 526 F.2d 505 (9th Cir. 1975), cert. denied, 425 U.S. 907, 96 S.Ct. 1501, 47 L.Ed.2d 758 (1976), 13 undercut any such distinction. The non-possessory real estate attachment cases cited by appellees are inapposite for the reasons discussed above. 108 The operation of the lis pendens statute in this case has taken nothing from Fedders other than the ability to convey its property free from the claims asserted by Chrysler-something it has no right to do. As I conclude that there has been no taking, I would reverse. As it is not necessary for me to discuss state action and due process, I would avoid the consideration of those constitutional questions. See Halderman v. Pennhurst State School & Hospital, 612 F.2d 84, 94 (3d Cir. 1979) (en banc), rev'd on other grounds, 451 U.S. 1, 101 S.Ct. 1531, 67 L.Ed.2d 694 (1981). 109