Bank of Am. v. R.H. Surgent, LLC, A-5423-18

CourtNew Jersey Superior Court – Appellate Division
Writing for the CourtPER CURIAM
PartiesBANK OF AMERICA, NATIONAL ASSOCIATION, Plaintiff-Respondent, v. R.H. SURGENT, LLC, JOHN W. SURGENT, and REGINA SURGENT, Defendants-Respondents and STEVEN L. KESSLER, d/b/a LAW OFFICES OF STEVEN L KESSLER, Defendant-Appellant, and JP MORGAN CHASE BANK, N.A., MONOGRAM CREDIT CARD BANK OF GEORGIA, LEXISNEXIS, and UNITED STATES OF AMERICA, Defendants and STEVEN L. KESSLER, d/b/a LAW OFFICES OF STEVEN L. KESSLER, Defendant/Third-Party Plaintiff-Appellant, v. BANK OF AMERICA, NATIONAL ASSOCIATION, R.H. SURGENT, LLC, JOHN W. SURGENT, and REGINA SURGENT, Defendants/Third-Party Defendants-Respondents. BANK OF AMERICA, NATIONAL ASSOCIATION, Plaintiff-Respondent, v. R.H. SURGENT, LLC, JOHN W. SURGENT, and REGINA SURGENT, Defendants-Appellants and STEVEN L. KESSLER, d/b/a LAW OFFICES OF STEVEN L KESSLER, Defendant-Respondent, and JP MORGAN CHASE BANK, N.A., MONOGRAM CREDIT CARD BANK OF GEORGIA, LEXISNEXIS, and UNITED STATES OF AMERICA, Defendants, and STEVEN L. KESSLER, d/b/a LAW OFFICES OF STEVEN L. KESSLER, Defendant/Third-Party Plaintiff-Respondent, v. BANK OF AMERICA, NATIONAL ASSOCIATION, Defendant/Third-Party Defendant-Respondent, and R.H. SURGENT, LLC, JOHN W. SURGENT, and REGINA SURGENT, Defendants/Third-Party Defendants-Appellants.
Docket NumberA-5423-18,A-0007-19
Decision Date31 August 2022

BANK OF AMERICA, NATIONAL ASSOCIATION, Plaintiff-Respondent,
v.

R.H. SURGENT, LLC, JOHN W. SURGENT, and REGINA SURGENT, Defendants-Respondents

and STEVEN L. KESSLER, d/b/a LAW OFFICES OF STEVEN L KESSLER, Defendant-Appellant, and JP MORGAN CHASE BANK, N.A., MONOGRAM CREDIT CARD BANK OF GEORGIA, LEXISNEXIS, and UNITED STATES OF AMERICA, Defendants and STEVEN L. KESSLER, d/b/a LAW OFFICES OF STEVEN L. KESSLER, Defendant/Third-Party Plaintiff-Appellant,
v.

BANK OF AMERICA, NATIONAL ASSOCIATION, R.H. SURGENT, LLC, JOHN W. SURGENT, and REGINA SURGENT, Defendants/Third-Party Defendants-Respondents.

BANK OF AMERICA, NATIONAL ASSOCIATION, Plaintiff-Respondent,
v.

R.H. SURGENT, LLC, JOHN W. SURGENT, and REGINA SURGENT, Defendants-Appellants

and STEVEN L. KESSLER, d/b/a LAW OFFICES OF STEVEN L KESSLER, Defendant-Respondent, and JP MORGAN CHASE BANK, N.A., MONOGRAM CREDIT CARD BANK OF GEORGIA, LEXISNEXIS, and UNITED STATES OF AMERICA, Defendants, and STEVEN L. KESSLER, d/b/a LAW OFFICES OF STEVEN L. KESSLER, Defendant/Third-Party Plaintiff-Respondent,
v.

BANK OF AMERICA, NATIONAL ASSOCIATION, Defendant/Third-Party Defendant-Respondent,

and R.H. SURGENT, LLC, JOHN W. SURGENT, and REGINA SURGENT, Defendants/Third-Party Defendants-Appellants.

Nos. A-5423-18, A-0007-19

Superior Court of New Jersey, Appellate Division

August 31, 2022


NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

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Argued on June 9, 2022.

On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. F-009209-17.

Nicholas A. Duston argued the cause for appellant Steven L. Kessler in A-5423-18 (Norris McLaughlin, PA, attorneys; Nicholas A. Duston, of counsel and on the briefs).

John Vincent Saykanic argued the cause for appellants John W. Surgent and R.H. Surgent, LLC in A-0007-19.

Nicholas A. Duston argued the cause for respondent Steven L. Kessler in A-0007-19 (Norris McLaughlin, PA, attorneys; Nicholas A. Duston, of counsel and on the brief).

Daniel JT McKenna and Bethany A. Abele argued the cause for respondent Bank of America, National Association (Ballard Spahr LLP, and Riker Danzig Scherer Hyland &Perretti LLP, attorneys; Daniel JT McKenna, William Patrick Reiley, Michael R. O'Donnell, Bethany A. Abele, and Michael P. Crowley, on the briefs).

John Vincent Saykanic, attorney for respondents John W. Surgent and R.H. Surgent, LLC, in A-5423-18, join in the briefs of appellant Steven L. Kessler and respondent Steven L. Kessler in A-0007-19.

Before Hoffman, Geiger, and Susswein, Judges.

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PER CURIAM

These two appeals concern a mortgage foreclosure action involving a single-family residential property securing a $1.75 million loan. No payments have been made on the loan for over sixteen years - since February 1, 2006. By order dated July 3, 2018, the trial court granted summary judgment to plaintiff, Bank of America, N.A. (plaintiff or BOA), determining that plaintiff had established its prima facie right to foreclose, and that all affirmative defenses and counterclaims asserted by defendants - R.H. Surgent, LLC, (the LLC), John W. Surgent (John), Regina Surgent (Regina), and Steven L. Kessler, doing business as the Law Office of Steven L. Kessler (Kessler) - were non-germane and legally deficient. We calendared the appeals back-to-back and now consolidate them for disposition in this opinion. We affirm.

I.

We discern the following facts from the record. Regina and John married in 1982. John controlled the couple's finances, and Regina did whatever he said regarding bills and expenses. On December 29, 1988, Regina purchased for $1.35 million the residential property in Franklin Lakes known as Block 1110-A, Lot 12 on the Franklin Lakes tax map (the Property or the Franklin Lakes

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property). On July 3, 1995, Regina deeded the Property to John. While John held title to the Property, he used it as collateral for a $600,000 commercial loan from Hudson City Savings Bank (Hudson). United States v. Surgent, No. 04-cr-364, 2009 WL 2525137, at *26 (E.D.N.Y. Aug. 17, 2009), abrogated on other grounds by United States v. Awad, 598 F.3d 76, 79 (2d Cir. 2010), abrogation recognized by United States v. Peralta, 778 Fed.Appx. 45, 46 (2d Cir. 2019).

Less than two weeks later, on July 14, 1995, John deeded the Property back to Regina, but the transfer was not recorded until July 1, 1996. During this delay in October 1995, Midatlantic Bank (Midatlantic) issued a $215,000 line of credit secured by the Property.

On September 7, 1999, Regina transferred the Property for $100 to the LLC, a Nevada Limited Liability Company created in August 1999. Regina stated she transferred the Property for estate planning purposes, but John said the purpose of the transfer was "asset protection" in case he got "jammed up."

The LLC's Articles of Organization were filed with the State of Nevada's Office of the Secretary of State on August 16, 1999. Those documents identified Regina as the LLC's manager and executing organizer and stated that the LLC "shall be managed by [the] Manager(s)." No other managers or members of the

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LLC were identified in the documents, and the LLC's address was listed as the same one in Florida used by Regina.

Regina and John were divorced by April 2018. On January 10, 2000, the Merrill Lynch Credit Corporation (Merrill Lynch) issued a $1.75 million loan to John on his own behalf and on behalf of the LLC, payable on March 1, 2026, with an initial interest rate of 8.5 percent per annum interest and a 5 percent fee for late payments. To secure payment of the loan, on that same day: 1) John, individually as "Borrower," and as "Manager" on behalf of the LLC, executed an adjustable rate note, an adjustable rate/index conversion option rider, a construction loan rider, and a construction loan agreement and addendum; and 2) John, as "Manager" on behalf of the LLC, executed a non-purchase money mortgage granting Merrill Lynch "and/or its assigns" a first priority lien on the Property. On January 14, 2000, Merrill Lynch recorded the mortgage.

The note stated:

If more than one person signs this Note, each person is fully and personally obligated to keep all of the promises made in this Note, including the promise to pay the full amount owed.... The Note Holder may enforce its rights under this Note against each person individually or against all of us together. This means that any one of us may be required to pay all of the amounts owed under this Note.
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To establish his authority to sign the loan documents on behalf of the LLC, John provided Merrill Lynch with the following corporate documents signed by John and Regina: (1) a consent of LLC "members" John and Regina, approving, authorizing and directing John "to execute" all documents "to complete and effectuate the refinance of [the Property] with [Merrill Lynch] for $1,750,000.00 and the mortgaging of [the Property] to [Merrill Lynch]"; (2) minutes of a special LLC meeting during which Regina resigned as managing officer and John was appointed to fill the position; and (3) a manager's certificate showing both John and Regina as the LLC's managers and signed by John as "Manager/Organizer".[1]

Thereafter, the loan proceeds were used to pay off the Hudson loan, the Midatlantic line of credit, and other debts.[2] Proceeds were also used to renovate and expand the Property, resulting in a house with seven bedrooms, eight bathrooms, five fireplaces, a theater, a gym, and a wine cellar. During the almost

6

two-year construction, which began in 1999, Regina lived in the home or in Florida.

On October 31, 2000, John and the LLC signed an amendment to the note, mortgage, and rider. On November 10, 2000, they also agreed to a note modification, which modified dates and payment methods and changed the maturity date to November 2025. At that time, $1.75 million remained the unpaid principal balance. John signed the document both individually and on behalf of the LLC, and Merrill Lynch recorded the amendment on December 13, 2000. One of the provisions stated in part: "If the spouse of the Borrower . . . is not obligated on the Note . . . said spouse shall not be personally obligated to any [sic] the sums owed under the terms of the Note and this Agreement."

On September 7, 2001, Merrill Lynch assigned the mortgage to Cendant Mortgage Corporation (Cendant). On March 19, 2007, Cendant's successor, PHH Mortgage Corporation (PHH), assigned the mortgage back to Merrill Lynch. Effective July 1, 2011, Merrill Lynch merged into BOA.

Meanwhile, on November 15, 2000, both Regina and John, on behalf of himself and as manager of the LLC, executed a separate home equity line of

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credit for $500,000 with Summit Bank.[3] John filed for bankruptcy in 2002. On April 15, 2004, the United States filed a federal indictment against John, charging him with securities fraud, conspiracy to commit securities fraud, and conspiracy to launder money. In a superseding indictment, the United States declared that, upon John's conviction, it would seek forfeiture of all property involved in his crimes, including the Franklin Lakes property.

A jury found John guilty of all counts in July 2005, and he was sentenced to a concurrent prison term of fourteen years. He was also ordered to pay restitution of approximately $2 million. See United States v. Surgent, 278 Fed.Appx. 32, 33 (2d Cir. 2008) (upholding denial of new trial).

In August 2005, the United States filed a federal criminal forfeiture action against John, pursuant to 21 U.S.C. § 853, seeking a money judgment and the forfeiture of "substitute property" under 21 U.S.C. § 853(p)(2). In its proposed preliminary forfeiture order, the "substitute property" included, among other assets, "all right, title, and interest in [the Franklin Lakes property]."

In June 2006, Kessler represented Regina and filed a petition on her behalf, pursuant...

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