Kernan v. One Washington Park Urban Renewal Associates

• Decision Date: 12 June 1998
• Citation: 713 A.2d 411,154 N.J. 437
• Parties: Rita KERNAN, Plaintiff-Respondent, v. ONE WASHINGTON PARK URBAN RENEWAL ASSOCIATES, Defendant-Appellant, v. INTERNATIONAL SERVICE SYSTEM, INC., ABC Corporation 1-5, (Said Names Being Fictitious), and John Does 1-10, (Said Names Being Fictitious), Defendants.
• Court: New Jersey Supreme Court

Page 437

154 N.J. 437

713 A.2d 411

Rita KERNAN, Plaintiff-Respondent, v. ONE WASHINGTON PARK URBAN RENEWAL ASSOCIATES, Defendant-Appellant, v. INTERNATIONAL SERVICE SYSTEM, INC., ABC Corporation 1-5,

(Said Names Being Fictitious), and John Does 1-10,

(Said Names Being Fictitious), Defendants.

Supreme Court of New Jersey.

Argued Feb. 18, 1998.

Decided June 12, 1998.

Jeffrey W. Mazzola, East Hanover, for defendant-appellant (Staehle & Smith, attorneys).

Richard T. Garofalo, Montclair, for plaintiff-respondent (Garrity, Graham, Favetta & Flinn, attorneys).

The opinion of the Court was delivered by

GARIBALDI, J.

The central question in this appeal is whether a commercial landowner in bankruptcy, who is judicially precluded from engaging in the management and control of its property by the court appointment of a trustee and managing agent, owes a duty to third persons to maintain an abutting public sidewalk in a reasonably safe condition.

I.

Following a severe snowstorm on January 17, 1994, Rita Kernan ("plaintiff") slipped and fell on an icy sidewalk abutting a commercial office building in Newark. Although the sidewalk had been sprinkled with pellets of calcium chloride, a layer of ice between one-quarter to one-half inch thick had accumulated on the sidewalk. As a result of her fall, plaintiff fractured her left hip. At all times relevant to this action, the building adjacent to the sidewalk has been owned by defendant-petitioner, One Washington Park Urban Renewal Associates ("OWPURA").

Prior to plaintiff's fall, OWPURA filed a Chapter 11 bankruptcy petition. Subsequently, the United States Bankruptcy Court appointed a Trustee in Bankruptcy ("Trustee") to oversee OWPURA's estate. On May 24, 1991, the Trustee obtained a court order authorizing him to retain McCormick Bank Street Investment Company, a real estate property management company doing business as McCormick Organization ("McCormick"), as managing and disbursing agent for the premises at One Washington Park. In his deposition, William Styles, McCormick's Executive Vice President, explained that his company was responsible for "manag[ing] the building and pay[ing] the bills." Specifically, McCormick's duties with regard to One Washington Park included "leasing, rental collection, tenant contact, daily tenant contact if necessary and submitting accounting reports to the courts or to the owners of the property monthly." In addition, McCormick was responsible for maintaining the interior and exterior of the building and hiring vendors to operate the building.

McCormick employed engineers from International Service System, Inc. ("ISS") to remove snow and ice from the sidewalks adjacent to the building. Specifically, that responsibility was delegated to the chief building engineer, Robert Lone. Styles instructed Lone to use rock salt on the blacktop and calcium chloride on the sidewalk when needed. Other than those limited directions, Styles provided the one-time instruction to Lone "to remove the ice or snow. How was left up to him." Nevertheless, McCormick remained an integral part of the management of One Washington Park. Styles stated at deposition that he frequently visited the premises and maintained daily contact with Lone regarding the maintenance of the exterior of the building at One Washington Park. Although Lone received the necessary funds to purchase supplies such as calcium chloride from OWPURA, McCormick paid the bills for snow and ice removal. McCormick also paid the employees of ISS.

On October 27, 1994, plaintiff filed a complaint against OWPURA and ISS in the Superior Court of New Jersey, Law Division, Essex County. In its answer, OWPURA recounted several affirmative defenses, including the defense that "plaintiff fail[ed] to state a claim on which relief [could] be granted," and that "[t]he alleged damages were caused by other persons over whom this defendant had no control." Subsequently, discovery between the parties ensued. Although plaintiff inquired about the owner of the building at One Washington Park in her interrogatories submitted to OWPURA, OWPURA at no time indicated its bankruptcy status. Rather, its answers to plaintiff included the cursory information that the premises were owned by OWPURA, but were in the care of a "Court appointed Manager." Although it would certainly have been prudent for plaintiff's counsel to inquire further regarding the position of the court-appointed manager, it is evident from the record that petitioner's counsel was less than forthcoming in revealing the fact that OWPURA had filed a Chapter 11 bankruptcy petition approximately three years prior to plaintiff's accident.

On July 1, 1996, defendant ISS moved to bifurcate the trial, severing the issues of liability and damages. That motion was granted and a trial regarding the liability of defendants ISS and OWPURA was held. At the conclusion of plaintiff's case on liability, both defendants moved for an involuntary dismissal pursuant to Rule 4:37-2(b). The trial court granted the motion based on two findings: (1) plaintiff failed to present a prima facie case of negligence on the part of either defendant, and (2) OWPURA owed no duty to plaintiff because it had no control over the operations at One Washington Park due to its bankruptcy status.

On appeal, the Appellate Division reversed and remanded for further proceedings. The panel concluded that, viewing the evidence most favorably to plaintiff, she presented a prima facie case against both defendants. Although the panel recognized that "control is a critical factor" in determining the duty of a landowner to a third party, see, e.g., Wickner v. American Reliance Ins. Co., 141 N.J. 392, 397, 661 A.2d 1256 (1995), the court declined to rule on the implications of OWPURA's bankruptcy status on its potential liability for plaintiff's fall because "the issue [did not] properly present itself for dispositive consideration." Noting that OWPURA did not raise its bankruptcy status as an affirmative defense, ¹ the court emphasized that plaintiff did not learn of the bankruptcy proceeding until just a few days before trial. The Appellate Division held that plaintiff should be permitted to timely amend her complaint to add McCormick as a defendant should she choose to do so.

Both OWPURA and ISS filed petitions for certification. This Court denied ISS's petition, 151 N.J. 465, 700 A.2d 878 (1997), but granted OWPURA's petition, 153 N.J. 48, 707 A.2d 151 (1997). We now modify the Appellate Division decision and remand to allow plaintiff the opportunity to amend her complaint as is appropriate. With regard to OWPURA's liability, however, we find that OWPURA did not owe a duty to maintain the abutting public sidewalk. That finding is based, not on OWPURA's bankruptcy status, but rather on the bankruptcy court's appointment of a trustee and managing agent who assumed control of the premises at One Washington Park and precluded OWPURA's participation in maintaining the building and its adjacent sidewalks.

II.

To recover under a negligence theory, it is paramount that a defendant first owe the plaintiff a duty. Carvalho v. Toll Bros. & Developers, 278 N.J.Super. 451, 457, 651 A.2d 492 (App.Div.1995), aff'd, 143 N.J. 565, 675 A.2d 209 (1996); see Strachan v. John F. Kennedy Mem'l Hosp., 109 N.J. 523, 529, 538 A.2d 346 (1988); Globe Motor Car Co. v. First Fidelity Bank, 273 N.J.Super. 388, 393, 641 A.2d 1136 (Law Div.1993), aff'd, 291 N.J.Super. 428, 677 A.2d 794 (App.Div.), certif. denied, 147 N.J. 263, 686 A.2d 764 (1996). "The question of whether a duty exists is a matter of law properly decided by the court, not the jury." Carter Lincoln-Mercury, Inc. v. EMAR Group, Inc., 135 N.J. 182, 194, 638 A.2d 1288 (1994). In determining whether a duty exists, the Court's analysis " 'involves identifying, weighing, and balancing several factors--the relationship of the parties, the nature of the attendant risk, the opportunity and ability to exercise care, and the public interest in the proposed solution.' " Ibid. (quoting Hopkins v. Fox & Lazo Realtors, 132 N.J. 426, 439, 625 A.2d 1110 (1993)); see also Goldberg v. Housing Auth., 38 N.J. 578, 588, 186 A.2d 291 (1962) ("[T]he question is one of fairness in the light of the nature of the relationship, the nature of the hazard, and the impact of such a duty on the public interest."). Whether OWPURA owes a duty to plaintiff depends on what effect the appointment by the bankruptcy court of a trustee and managing agent to manage the premises at One Washington Park has on OWPURA's ability to participate in the daily management of the premises and its authority to control the snow and ice removal on the day of plaintiff's fall.

A.

The filing of a bankruptcy petition suspends the normal operation of the rights and obligations between a debtor and its creditors. 9 Am.Jur.2d Bankruptcy § 1 (1991). In this case, OWPURA filed a petition pursuant to Chapter 11 of the Bankruptcy Code ("Code"), 11 U.S.C.A. §§ 1101 to 1174. The primary purpose of Chapter 11, which is entitled "Reorganization," is the rehabilitation of financially troubled businesses, see NLRB v. Bildisco, 465 U.S. 513, 527, 104 S.Ct. 1188, 1196, 79 L. Ed.2d 482, 496 (1983); In re 312 W. 91st St. Co., 35 B.R. 346, 347 (Bankr.S.D.N.Y.1983); In re Langley, 30 B.R. 595, 605 (Bankr.N.D.Ind.1983), and the prevention of unnecessary liquidations, see In re Piece Goods Shops Co., 188 B.R. 778, 790 (Bankr.M.D.N.C.1995); In re Chugiak Boat Works, Inc., 18 B.R. 292, 293 (Bankr.D.Alaska 1982).

In accordance with those principles, it is ordinarily presumed that a debtor who files a Chapter 11 bankruptcy will remain in control of its estate. 9 Am.Jur.2d Bankruptcy §§ 275, 343 (1991); In re Heck's Properties, Inc., 151 B.R. 739, 756 (S.D.W.Va.1992). That presumption has been characterized as "strong." 9 Am.Jur.2d Bankruptcy § 275 (citing In re Clinton Centrifuge, Inc. 85 B.R. 980, 984 (Bankr.E.D.Pa.1988))....