Chepovetsky v. Civello
| Decision Date | 16 June 2022 |
| Docket Number | DOCKET NO. A-0476-21 |
| Citation | 472 N.J.Super. 631,277 A.3d 1089 |
| Parties | Vadim CHEPOVETSKY and Svetlana Nashtatik, Plaintiffs-Respondents, v. Louis CIVELLO, Jr., Defendant-Appellant. |
| Court | New Jersey Superior Court — Appellate Division |
Jeffrey S. Mandel, Millburn, argued the cause for appellant.
Kenneth L. Winters argued the cause for respondents (Jardim, Meisner & Susser, PC, attorneys; Kenneth L. Winters, on the briefs).
Before Judges Hoffman, Geiger, and Susswein.
The opinion of the court was delivered by
GEIGER, J.A.D.
Defendant Louis Civello, Jr. appeals from a September 3, 2021 Chancery Division order vacating a June 24, 2021 judgment entered against plaintiffs Vadim Chepovetsky and Svetlana Nashtatik pursuant to Rule 4:50-1(d) and reinstating plaintiffs complaint to quiet title. We affirm in part, as modified, vacate in part, and remand.
Civello owned Bayview Auto and Truck, Inc. (Bayview), an automobile dealership in South Amboy. In January 2007, Civello agreed to sell Bayview and its inventory of nineteen vehicles to Artem Boguslavskiy for $196,500. Under their arrangement, Boguslavskiy would operate Bayview immediately, pending approval of the transaction by the New Jersey Motor Vehicle Commission (MVC), at which time the transaction would close. If Boguslavskiy failed to obtain the requisite approval from the MVC, the agreement would be rescinded. Boguslavskiy was required to provide an accounting of all vehicle sales and turn over the proceeds from the sale of the inventory to Civello.
Boguslavskiy paid Civello $12,500 upon execution of the agreement and gave defendant a promissory note for $184,000, with interest thereon at 2.5 percent, payable in sixty equal monthly installments followed by a balloon payment due on February 22, 2012. The note also provided for late charges and counsel fees in the event of nonpayment.
Boguslavskiy is related to Chepovetsky. The promissory note was secured by a mortgage on plaintiffs' residence in Old Bridge and Chepovetsky's personal guaranty.
After remitting four monthly installments, Boguslavskiy defaulted and made no subsequent payments. Civello alleged that Boguslavskiy sold cars without charging sales tax, kept the proceeds for the cars that were sold without reimbursing defendant, and abandoned Bayview. The transaction never closed, and Civello ultimately sold Bayview to someone else.
On July 18, 2008, Civello and Bayview filed suit against Boguslavskiy, Chepovetsky, and others in the Chancery Division (Docket No. C-28-08).1 Civello's amended complaint alleged breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, interference with business relationships, breach of fiduciary duty, conversion, fraud, false representation, duty to indemnify, unconditional guarantee (as to Chepovetsky), and forgery (as to Chepovetsky). Civello sought compensatory and consequential damages, punitive damages, interest, an injunction, an accounting, attorney's fees, and costs. The complaint did not mention or seek to foreclose the mortgage. That action was consolidated into a Law Division action (Docket No. L-707-09) involving a separate suit by E-LOAN Inc. against Boguslavskiy, Bayview, and others.2 The outcome of the 2008 action is unclear, but it apparently did not result in a judgment.
In 2011, plaintiffs filed a joint voluntary Chapter Seven bankruptcy in the United States Bankruptcy Court for the District of New Jersey (Bankruptcy Court) (Case No. 11-18319-MBK). The bankruptcy schedules they filed included reference to Civello's civil suit but did not specifically reference the note, guaranty, or mortgage as obligations from which plaintiffs sought discharge. Civello was listed as an unsecured nonpriority creditor relating to his civil suit and acknowledges he received notice of the bankruptcy.
The bankruptcy trustee abandoned his interest in plaintiffs' residence rather than attempting to liquidate it for the benefit of creditors.3 The debt owed by Chepovetsky on the personal guaranty was not declared nondischargeable by the Bankruptcy Court. On September 29, 2011, plaintiffs were granted a discharge in bankruptcy, which included Chepovetsky's obligation under the personal guaranty. Notice of the discharge was mailed by the Bankruptcy Court to Civello.
On January 10, 2019, plaintiffs filed this action against Civello, seeking to quiet title on their residence, injunctive relief, and a declaratory judgment barring Civello from pursuing claims under the mortgage, promissory note, or guaranty. They alleged that the applicable six-year statute of limitations on enforcement of the mortgage had expired since the maturity date of the note and mortgage was February 22, 2012. Plaintiffs did not plead that Civello was barred by the bankruptcy discharge from seeking a money judgment against them, nor did they rely upon the bankruptcy discharge as a basis to quiet title.
Civello filed an answer generally denying the allegations of the complaint, asserting numerous affirmative defenses, and a counterclaim for breach of contract, unjust enrichment, quantum meruit, and breach of the covenant of good faith and fair dealing. Civello alleged that Chepovetsky breached the guaranty, Nashtatik was a third-party beneficiary of the guaranty, and plaintiffs owed the outstanding balance on the loan. He asked the court to "maintain[ ] the mortgage" and for a judgment on the guaranty.
On June 12, 2019, plaintiffs filed an answer to the counterclaim that denied the substantive allegations but asserted no affirmative defenses. Significantly, plaintiffs did not assert their bankruptcy discharge as an affirmative defense to the counterclaim.
Plaintiffs did not provide requested discovery and did not comply with two orders compelling them to provide discovery. On January 10, 2020, the court dismissed plaintiffs' complaint with prejudice due to their violation of the two discovery orders and the court's subsequent instructions.
On February 7, 2020, the court conducted a one-day bench trial on Civello's counterclaim. Plaintiffs did not attend the trial or participate in the pretrial information exchange. Counsel for Chepovetsky attended the trial and cross-examined Civello's witnesses. Counsel indicated Chepovetsky was unavailable to attend because he was out of the country.
Civello testified on his own behalf. He described the transaction consistent with the documentation in the record. Civello testified that Boguslavskiy sold vehicles from Bayview's inventory and paid the proceeds to himself and plaintiffs before abandoning the dealership in the summer of 2007. During encounters in 2012 and April 2013, Chepovetsky assured Civello that he would pay the balance owed. Paul Tortora, who observed the 2013 encounter, testified that Chepovetsky told Civello that he would pay the debt owed. The note, mortgage, guaranty, stock purchase agreement, and copies of checks were admitted into evidence. Plaintiffs did not produce any witnesses.
Plaintiffs' counsel did not mention plaintiffs' bankruptcy discharge during the trial. He did ask questions regarding Boguslavskiy's own bankruptcy.
On June 24, 2021, the court issued a written opinion finding that Civello proved his counterclaims of breach of contract, unjust enrichment, and breach of the covenant of good faith and fair dealing. The court found that plaintiffs waived and were "estopped from asserting" the affirmative defenses of the statute of limitations, the entire controversy doctrine, and "any other affirmative defense that could have been pled in the [a]nswer to the [c]ounterclaim."
The court found Civello could proceed to enforce the note against Boguslavskiy and the guaranty against Chepovetsky, but rejected Civello's liability claims against Nashtatik, noting she was "a mortgagor and not a guarantor." The court found "the mortgage is simply a security agreement and not a guaranty of payment." The court entered judgment against Chepovetsky on the guaranty, in the amount of $410,800 (comprised of $184,000 principal, $216,000 interest through the maturity date, and late fees of $10,800), plus additional interest from February 12, 2012 to the date of the judgment, and counsel fees in an amount to be determined. The court did not enter judgment against Nashtatik. The judgment did not grant any relief under the mortgage.
On July 29, 2021, plaintiffs filed a motion to: (1) vacate the judgment alleging it was void due to their 2011 bankruptcy discharge; and (2) vacate the dismissal of their complaint to quiet title.4 The motion papers included plaintiffs' bankruptcy filings, which demonstrated that the claims related to Chepovetsky's guaranty and defendant's 2008 civil action were discharged in bankruptcy.
The court heard oral argument on August 27, 2021. Plaintiffs emphasized that the judgment was void due to their 2011 bankruptcy discharge. They argued that any challenge to the discharge in bankruptcy of the debt owed on the guaranty must be brought in Bankruptcy Court rather than Superior Court, and the time to do so had expired. Plaintiffs emphasized that the Civello's claim was for personal liability under the guaranty and not a suit on the mortgage, as there was no prayer for foreclosure.
Regarding their action to quiet title, plaintiffs argued that New Jersey does not permit clouds on title arising from a discharged debt, citing N.J.S.A. 2A:16-49.1. They further argued that the maturity date of the mortgage was in February 2012 and an action to foreclose the mortgage was subject to the six-year statute of limitations imposed by N.J.S.A. 2A:50-56.1, rendering the mortgage lien unenforceable. Therefore, their action to quiet title should be allowed to proceed. Plaint...
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