In re Crispino

• Decision Date: 17 November 1993
• Docket Number: Bankruptcy No. 92-31551,Adv. No. 93-3009.
• Citation: 160 BR 749
• Parties: In re James CRISPINO, Debtor. James CRISPINO, Plaintiff, v. CHEMICAL BANK NEW JERSEY, N.A., Defendant.
• Court: U.S. Bankruptcy Court — District of New Jersey

160 B.R. 749 (1993)

In re James CRISPINO, Debtor James CRISPINO, Plaintiff, v. CHEMICAL BANK NEW JERSEY, N.A., Defendant.

Bankruptcy No. 92-31551, Adv. No. 93-3009.

United States Bankruptcy Court, D. New Jersey.

November 17, 1993.

Howard A. Teichman, Markowitz & Zindler, Lawrenceville, NJ, for plaintiff.

Carol Ann Slocum, Klehr, Harrison, Harvey, Branzburg & Ellers, Cherry Hill, NJ, for defendant.

MEMORANDUM OPINION

STEPHEN A. STRIPP, Bankruptcy Judge.

This shall set forth the court's decision on a motion by defendant Chemical Bank New Jersey, N.A. (hereinafter "Chemical Bank" or "the Bank") for summary judgment in this adversary proceeding. The complaint filed by plaintiff James Crispino (hereinafter "the debtor") sought a determination of the validity, priority and extent of a ship's mortgage held by Chemical Bank on a party fishing boat owned by the debtor. The complaint also requested a determination of the validity, priority and extent of a judicial lien on the vessel created by Chemical Bank's levy pursuant to a default judgment which it obtained against the debtor. However, as this adversary proceeding has progressed it has become clear that the debtor does not dispute the validity, priority or extent of the ship's mortgage. What the debtor actually seeks is a judgment compelling Chemical Bank to honor an alleged oral agreement to accept payments over time on the debt. Since the debtor alleges that this agreement was reached before Chemical Bank obtained its default judgment against the debtor, this motion raises issues as to whether the relief which the debtor seeks is barred under the doctrines of res judicata, collateral estoppel, or the entire controversy doctrine. For the reasons which follow, Chemical Bank's motion for summary judgment is granted.

This court has jurisdiction under 28 U.S.C. §§ 1334(b), 151 and 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (K) and (O).

FACTS

The essential facts of this matter are undisputed. Beginning in 1988, the debtor began to borrow money from Horizon Bank to construct a boat known as "The Enterprize." The debtor took advances and made payments of interest over a two year period. In 1990, Horizon Bank merged with Chemical Bank.

On June 15, 1990, the debtor executed and delivered a note in favor of Chemical Bank for the principal amount of $137,000.00.¹ The note was secured by a ship's mortgage executed by Patricia Callahan, attorney-in-fact for the debtor and delivered on December 4, 1989.² The ship's mortgage was perfected by filing with the United States Coast Guard on March 15, 1990.

Under the terms of the note, payment of the entire principal amount of $137,000.00 was due on August 14, 1990. The debtor defaulted, but subsequently made some payments on the loan in the months of April through September 1991. Chemical Bank filed a complaint in April 1991 in the New Jersey Superior Court. The debtor never answered the complaint and on December 12, 1991, default judgment was entered in favor of Chemical Bank for $155,712.00, costs and $1,612.78 for attorneys fees and expenses.

On March 10, 1992 the debtor filed a voluntary petition for relief under chapter 11 of title 11, United States Code (the Bankruptcy Code). The debtor then filed the complaint commencing this adversary proceeding.

CONCLUSIONS OF LAW

I.

On a motion for summary judgment, the moving party has the initial burden of demonstrating that "there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law." FED.R.CIV.PRO. 56(c). If the movant meets this burden, then the burden shifts to the opposing party to present evidence demonstrating a genuine issue of material fact. FED.R.CIV.PRO. 56(e). The opposing party must present evidence demonstrating a triable issue of fact, and can not merely rely on allegations or denials contained in the pleadings. FED.R.CIV.PRO. 56(e). On a motion for summary judgment the court must resolve any doubts as to genuine issues of material fact in favor of the opposing party. Meyer v. Riegel Products Corp., 720 F.2d 303 (3d Cir. 1983).

According to the debtor, the loan officer at Horizon agreed to loan additional amounts necessary to complete the boat, and that the debtor could make monthly payments after the boat was completed from the earnings on the boat. In 1990, Horizon Bank merged with Chemical Bank, N.A. Mr. Hutchinson, a Chemical Bank loan officer, then told the debtor that they would not loan him any more funds to complete the boat, and the entire balance of the loan would be due shortly. The debtor obtained funds elsewhere and completed the boat in late 1991. The debtor alleges that in 1991, Chemical Bank agreed to accept monthly payments on the loan balance and forego any legal action.

The debtor maintains that he spoke with Mr. Hutchinson after receiving the complaint and summons in June 1991 and Mr. Hutchinson told him he would "take care of it." The debtor states that based on these statements he continued to make monthly payments and did not retain an attorney or challenge the lawsuit. In October 1991, Mr. Hutchinson spoke with the debtor and told him the Bank was going to proceed to judgment. The debtor allegedly asked Mr. Hutchinson to "honor the bank's agreement to give . . . monthly terms for repayment," and Mr. Hutchinson told the debtor that he would discuss it after he obtained a judgment. The debtor believed that Chemical Bank was going to file a new lawsuit in order to obtain judgment. The debtor received notice of the default judgment in December 1992. He alleges that he then tried to contact Mr. Hutchinson, and that Mr. Hutchinson has refused to speak with him.

The debtor admits that he borrowed money from Horizon Bank which is now part of Chemical Bank, N.A. Moreover, the debtor does not dispute signing or executing the note in favor of Chemical Bank, nor does he dispute the amount borrowed or owed to Chemical Bank, N.A. as successor to Horizon Bank.³ The debtor admits that he executed a valid mortgage on the "Enterprize" in favor of Chemical Bank to secure the loan for $137,000.00. The debtor admits that Chemical Bank holds a valid default judgment against him. The debtor argues, however, that because of the alleged oral agreement prior to the judgment for payment of the debt in monthly installments, the debtor is entitled to pay the debt in such installments notwithstanding Chemical Bank's judgment and levy. In other words, the debtor asks this court to ignore the state court default judgment.

II.

The ultimate issue on this motion is whether the debtor is barred from challenging the New Jersey Superior Court judgment. The full faith and credit statute provides that "judicial proceedings . . . shall have the same full faith and credit in every court within the United States and its Territories and Possessions as they have by law or usage in the courts of such State, Territory or Possession from which they are taken." 28 U.S.C. § 1738. Therefore, relitigation of a judgment is precluded in federal courts to the same extent that such relitigation is precluded in the rendering state as determined by the law of that state. Kremer v. Chemical Construction Corp., 456 U.S. 461, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982) ("As one of its first acts, Congress directed that all United States courts afford the same full faith and credit to state court judgments that would apply in the State's own courts."); Gregory v. Chehi, 843 F.2d 111 (3d Cir.1988) ("A federal court applying preclusion principles is bound by the Full Faith and Credit Statute, and must give a prior state judgment the same effect as would the adjudicating state."); Al-Khazraji v. St. Francis College, 784 F.2d 505, 509 (3d Cir.1986) (Third Circuit applied Pennsylvania law of res judicata to state court judgment stating that "the Rules of Decision Act, 28 U.S.C. § 1652 requires federal courts to give a prior state court judgment the same res judicata effect as would be provided by the courts of that state."). It follows that New Jersey law of res judicata, collateral estoppel, and the entire controversy doctrine will apply to determine if the relief which the debtor seeks is barred by the New Jersey Superior Court judgment.

A. Res Judicata

Having determined that New Jersey law applies, the next issue is whether under New Jersey law, res judicata is applicable to default judgments, and if so, whether res judicata bars the debtor's challenges to the Chemical Bank's default judgment.⁴

The debtor argues that res judicata does not bar his claim because it was entered by default. Specifically, the debtor relies on Texas Company v. Di Gaetano, 71 N.J.Super. 413, 177 A.2d 273 (App.Div.1962), aff'd, 39 N.J. 120, 187 A.2d 721 (1963), wherein the New Jersey Appellate Division stated that while a default judgment is conclusive "between the parties for whatever is essential to support the judgment, it is conclusive only as to such matters or issuable facts as were properly averred in the complaint . . . A judgment by default does not estop a defendant as to matters which he might have affirmatively pleaded." Id., 71 N.J.Super. at 432, 177 A.2d 273 (citing Phillips v. Phillips, 118 N.J.Eq. 189, 192, 178 A. 265 (Ch.1935)), rev'd on other grounds, 119 N.J.Eq. 462, 183 A. 220 (E. & A.1936), aff'd in part, 119 N.J.Eq. 497, 183 A. 222 (E. & A.1936). The debtor places most of his reliance on the second sentence in the quoted passage, arguing that affirmative defenses may now be raised. However, the statement that a default judgment does not estop the defendant "as to matters which he might have affirmatively pleaded" refers to collateral estoppel, not res judicata.⁵ Moreover, Di Gaetano involved a motion to vacate a default judgment, rather than a determination of the effect of such judgment in a subsequent case. The discussion in Di Gaetano of the preclusive effects of default judgments in subsequent cases was d...