Business Loan Center, Inc. v. Nischal, Civil Action No. 03-2717 (MLC).

• Decision Date: 04 August 2004
• Docket Number: Civil Action No. 03-2717 (MLC).
• Parties: BUSINESS LOAN CENTER, LLC, as successor-in-interest to Business Loan Center, Inc., Plaintiff, v. Manoj NISCHAL, et al., Defendants.
• Court: U.S. District Court — District of New Jersey

331 F.Supp.2d 301

BUSINESS LOAN CENTER, LLC, as successor-in-interest to Business Loan Center, Inc., Plaintiff, v. Manoj NISCHAL, et al., Defendants.

Civil Action No. 03-2717 (MLC).

United States District Court, D. New Jersey.

August 4, 2004.

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Jonathan T.K. Cohen, McCusker, Anselmi, Rosen, Carvelli & Walsh, PC, Chatham, NJ, for Plaintiff.

Gary T. Jodha, Law Offices of Gary T. Jodha, Princeton Junction, NJ, for Defendants.

MEMORANDUM OPINION

COOPER, District Judge.

This matter comes before the Court on a motion by plaintiff Business Loan Center, LLC ("BLC"), and a cross motion by defendants Manoj Nischal, Anant Nischal, Nischal, Inc., d/b/a Riverwalk Manor a/k/a and/or f/k/a Travelodge Augusta (collectively, "defendants"), for summary judgment pursuant to Federal Rule of Civil Procedure ("Rule") 56(c). For the reasons stated herein, we will grant defendants' cross motion, and dismiss the complaint.

BACKGROUND

The following facts are uncontested. Plaintiff loaned defendants $890,000, in March 2000. (Navarro Decl. ¶ 4.) The loan was evidenced by a Promissory Note. (Id., Ex. A.) Defendants Manoj and Anant Nischal also executed personal guarantees, assuring payment on the loan. (Id., Ex. B & ¶ 6.) The loan was secured by a mortgage on a one hundred forty-four room hotel located in Augusta, Georgia. (Navarro Decl. ¶ 5.)

Defendants defaulted on the loan, so plaintiff had the mortgaged property appraised and held a foreclosure sale on December 3, 2002. (Id. ¶ 7, 8.) Plaintiff itself acquired the property for the full appraisal price of $650,000, and issued defendants a credit, towards their loan, in that amount. (Id. ¶ 11.) Defendants were served with a summary of the appraisal in February 2003. (Id. ¶ 12, Ex. D.) As of December 2, 2002, defendants owed BLC $907,941.95 less the $650,000 credit, for a total of $257,941.95. (Cohen Decl. ¶ 4.)

Plaintiff filed for a confirmation of the foreclosure sale in Georgia Superior Court on December 30, 2002. (Id., Ex. A.) In lieu of answering, defendants' Georgia counsel requested and was granted an adjournment without a new return date. (See id., Ex. C.) To date, the foreclosure sale has not been confirmed by the Georgia Superior Court. (Trotter Aff. ¶ 3.)

Plaintiff brought this action to recover a deficiency judgment for the balance owed on the March 2000 loan, plus interest, costs and fees.

DISCUSSION

The dispositive issue on the motion and cross motion for summary judgment is what law applies to the parties' dispute: Georgia or New Jersey. The significant difference between New Jersey and Georgia law is the latter's requirement that any foreclosure sale be confirmed within 30 days as a condition precedent to a deficiency action. Such a foreclosure-first requirement would not be required were this action subject to New Jersey law.

I. Standard of Review

A. Summary Judgment

Rule 56 allows for summary judgment

if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

Fed.R.Civ.P. 56(c). Once the summary judgment movant has met this prima facie burden, the nonmovant "must set forth specific facts showing that there is a genuine issue for trial" and "may not rest upon the mere allegations or denials of the adverse party's pleading." Id. at (e).

A court must view the evidence in the light most favorable to the nonmovant when deciding a summary judgment motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "At the summary judgment stage, the judge's function is not ... to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Under this standard the "mere existence of a scintilla of evidence in support of the [nonmovant's] position will be insufficient [to defeat a Rule 56(c) motion]; there must be evidence on which the jury could reasonably find" for the nonmovant. Id. at 252, 106 S.Ct. 2505.

B. Conflict-of-Law Principles

A district court having jurisdiction under 28 U.S.C. 1332, applies the choice-of-law rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). In analyzing conflict-of-law questions, "New Jersey courts seek to apply the law of the state with the greatest interest in resolving the particular issue that is raised." Pfizer, Inc. v. Employers Ins., 154 N.J. 187, 193, 712 A.2d 634 (1998); see also Woessner v. Air Liquide, Inc., 242 F.3d 469, 472 (3d Cir.2001). New Jersey applies the "governmental-interest" choice-of-law test "that seeks to apply the law of the state with the greatest interest in governing the specific issue in the underlying litigation." Fu v. Fu, 160 N.J. 108, 118, 733 A.2d 1133 (1999) (citation omitted). The governmental-interest test is a two-part inquiry that asks: (1) is there an actual conflict between the laws of the two states in question, and, if so, (2) "which state has the most significant relationship to the occurrence and the parties with respect to the issue"? Id. at 119, 733 A.2d 1133.

"A court applying New Jersey choice-of-law rules typically would follow the approach of the Restatement (Second) of Conflict of Laws." ("Restatement") Bartkus, N.J. Federal Civil Procedure, 18-4:1 (citing Gen. Ceramics, Inc. v. Firemen's Fund Ins. Cos., 66 F.3d 647, 652-53 (3d Cir.1995)); see also Veazey v. Doremus, 103 N.J. 244, 251, 510 A.2d 1187 (1986). The Restatement gives some guidance in applying this analysis to contract disputes concerning property. "The task of a court sitting in a state other than the state of the situs is to arrive at the same result a court of the situs would have arrived at upon the actual facts of the case." Restatement at Scope (Ch. 9, Topic 2). The Third Circuit Court of Appeals, in General Ceramics, grouped the relevant factors under Section 6 of the Restatement into five categories:

(1) the competing interests of the relevant states,

(2) the national interests of commerce among the several states,

(3) the interests of the parties,

(4) the interests underlying the contract law, and

(5) the interests of judicial administration.

Pfizer, 154 N.J. at 198, 712 A.2d 634 (citing Gen. Ceramics, 66 F.3d at 656).

The Restatement elaborates:

In the absence of an effective choice of law by the parties, the contacts to be taken into account ... include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicile, residence, nationality, place of incorporation and place of business of the parties.

Restatement at § 188. "These contacts are to be evaluated according to their relative importance with respect to the particular issue." Id. The comments instruct that "the policy in favor of effectuating the relevant policies of the state of dominant interest is given predominant weight in the rule that transfers of interests in land are governed by the law that would be applied by the courts of the situs." Id. at § 6 cmt. c.¹ Thus, "[t]he method for the foreclosure of a mortgage on land and the interests in the land resulting from the foreclosure are determined by the local law of the situs." Id. at § 229.

[W]hen the thing or the risk is the principal subject of the contract, it can often be assumed that the parties, to the extent that they thought about the matter at all, would expect that the local law of the state where the thing or risk was located would be applied to determine many of the issues arising under the contract.

Id. at § 188 cmt. e.

Matters of procedure are governed by the law of the forum, whereas substantive matters are governed by the law of the jurisdiction to which the court is referred by the forum's choice-of-law rules. See Light v. Granatell, 171 N.J.Super. 557, 563, 410 A.2d 266 (1979).

C. What Burden Must Plaintiff Meet to be Entitled to a Deficiency Judgment?

New Jersey

N.J.S.A. § 2A:50-2 requires that "all proceedings to collect any debt secured by a mortgage on real property, shall be as follows: First, a foreclosure of the mortgage." While New Jersey law does require foreclosure as the first step, there are three relevant exceptions here.

"[W]here mortgage loans involve the financing of business or commercial properties, the lenders are not required to foreclose on the mortgage before seeking entry of judgment on the notes or on a guaranty." Summit Trust Co. v. Willow Bus. Park, L.P., 269 N.J.Super. 439, 446, 635 A.2d 992 (1994) (citing Schwartz v. Bender Inv., Inc., 58 N.J. 444, 449, 279 A.2d 100 (1971)).

[T]here is nothing in the case before us to warrant a departure here from the presently accepted rule that suit may first be brought upon a note without preliminary foreclosure of the mortgage. This is not the case of an unwitting homeowner who improvidently signs a note.... The loan here was of a commercial nature and the mortgage is a lien ... on commercial properties.

Schwartz, 58 N.J. at 449, 279 A.2d 100. This exception is codified at N.J.S.A. § 2A:50-2.3(a).

Actions against guarantors of a note following default are also exempted from the statute. Del. Truck Sales, Inc. v. Wilson, 131 N.J. 20, 32, 618 A.2d 303 (1993); Summit Trust, 269 N.J.Super. at 444-45, 635 A.2d 992 ("[A] continuing, absolute and unconditional guaranty of a note such as the guaranty involved here may be enforced directly against the guarantor without prior recourse to foreclosure on the collateral or even against the principal debtor."). This exception is codified at N.J.S.A. § 2A:50-2.3(d).

A foreclosure also is not required where...