Interchange State Bank v. Veglia

• Decision Date: 26 December 1995
• Citation: 668 A.2d 465,286 N.J.Super. 164
• Parties: , RICO Bus.Disp.Guide 9015, 28 UCC Rep.Serv.2d 739 INTERCHANGE STATE BANK, a banking corporation of the State of New Jersey, Plaintiff-Appellant, v. Gerald VEGLIA, William Bravakis, Estate of Robert Utter, Defendants, and Trico Mortgage Company, Inc. and United Jersey Financial Corporation, Defendants-Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 164

286 N.J.Super. 164

668 A.2d 465, RICO Bus.Disp.Guide 9015, 28

UCC Rep.Serv.2d 739

INTERCHANGE STATE BANK, a banking corporation of the State of New Jersey, Plaintiff-Appellant, v. Gerald VEGLIA, William Bravakis, Estate of Robert Utter, Defendants and Trico Mortgage Company, Inc. and United Jersey Financial Corporation, Defendants-Respondents.

Superior Court of New Jersey Appellate Division.

Argued Oct. 17, 1995

Decided Dec. 26, 1995.

Patrick J. Spina, Saddle Brook, argued the cause for appellant (Andora, Palmisano & Geaney, attorneys; John P. Palmisano, Elmwood Park, of counsel; Mr. Spina and Joseph A. Venti, Elmwood, on the brief).

Kathleen McLeod Caminiti, Somerset, argued the cause for respondents (Collier, Jacob & Mills, attorneys; Cynthia M. Jacob, of counsel).

Before Judges KEEFE, WEFING and A.A. RODRIGUEZ.

The opinion of the court was delivered by

KEEFE, J.A.D.

Plaintiff Interchange State Bank ("Interchange") appeals from the entry of summary judgment in favor of defendants Trico Mortgage Company Inc., United Jersey Financial Corporation, Gerald Veglia and William Bravakis (referred to herein collectively as "Trico"), on Interchange's claim under the New Jersey Racketeering statute, N.J.S.A. 2C:41-1 to -6.2 ("RICO"). Interchange also appeals the entry of summary judgment in favor of Trico on Trico's counterclaim whereby Interchange was found liable to Trico, pursuant to N.J.S.A. 12A:3-419, because it paid on a check made to the order of Trico over a fraudulent endorsement.

This case and related litigation stems from the fraudulent actions of Robert Utter ("Utter"). In or around December 1987, Utter and his wife Gail, (hereinafter occasionally referred to as the "Utters") and Equishare Inc. ("Equishare"), a corporation wholly owned by the Utters, entered into a joint venture with First Central Mortgage Services Inc. ("First Central"), a licensed mortgage company engaged in the origination of first and secondary mortgage loans. Through the joint venture, the Utters and Equishare took over a branch office of First Central in Rochelle Park, New Jersey, and operated it as an independent entity outside of First Central's direct supervision. Utter was given the title of assistant vice-president. By corporate resolution, First Central opened a checking account at Interchange, and the Utters were given exclusive check signing and depository authority.

From December 1987 through January 1989, Utter and Equishare closed on a variety of first and secondary loans in which First Central was named mortgagee or lender of record. During this period the Utters and Equishare generated in excess of $16 million in mortgage loans for First Central.

In the summer of 1988, Trico Mortgage Company contacted John Taylor, the president of First Central, and notified him that it was having problems with a few of the appraisals on loans that it had purchased from First Central. The appraisals in question had been altered to reflect higher values than had been originally reported in order to obtain the loans. The altered appraisal reports had been generated by Utter and Equishare at the Rochelle Park branch of First Central. Trico determined that approximately twenty appraisals had been altered. After new appraisals were completed and a determination made as to whether Trico would suffer financially because of the altered appraisals, Trico agreed to hold the loans as long as it did not have collection problems. There was no official notice given to the mortgagors or to the Banking Commission.

Both Frank Tricarico, the president of Trico, and Taylor believed that Utter was responsible for the altered appraisals because he was the only person at the First Central branch who stood to gain from an increase in the number of loans obtained. Utter was confronted and, in response, sent an indemnification letter dated August 3, 1988 to Trico, the text of which read:

Dear Frank:

Please allow this letter to serve as both a corporate and a personal guarantee from Equishare Inc., its fully owned subsidiaries and Robert and Gail Utter, to Trico Mortgage Company, Inc. in order to indemnify the same from any losses arising from falsification or alteration of any appraisals originating from the office of First Central Mortgage Services, Inc., in Rochelle Park, New Jersey.

This guarantee not only includes any problems of this nature which have already surfaced, but extends to all problems of this type, surfaced or not.

A note on the mortgage on 72 Ahnert Road, North Haledon, New Jersey shall also be executed as additional collateral for this guarantee.

Additionally, in July 1988 it came to light that liens on a First Central mortgagor's property remained unpaid following a mortgage refinancing arranged by Utter. The First Central mortgage had been assigned to Trico. Utter however, failed to pay off the prior mortgage held by Commonwealth Mortgage Co. ("Commonwealth"). Subsequently, Commonwealth went forward with foreclosure proceedings against the mortgagor. In August 1988, Trico also began foreclosure proceedings against the mortgagor, alleging that he had defaulted in payment. The mortgagor answered the Trico complaint and crossclaimed, alleging that Trico had failed to pay off the debt owed to Commonwealth; a condition of the refinancing of the mortgage.

As a result of these events, First Central intensified its supervision over Utter and Equishare. From July 1988 to January 1989, principals from First Central visited the Rochelle Park office several times a week and double checked the closings before bringing the loans to Trico. First Central and Trico also established a system whereby when Utter brought a loan to Trico, Trico would call persons named on the disclosure statement to find out if the check was received.

By January 31, 1989, the Utters and Equishare became disassociated from First Central and entered into a joint venture with Great American Mortgage Corp. ("Great American") to manage a branch office located at the same site in Rochelle Park. Although Tricarico denied it, Edward Roncoroni, a principal of Great American, testified that he discussed Utter's move to Great American with Tricarico on several occasions in late 1988, and January 1989. Tricarico told Roncoroni that Utter did a fine job packaging loans. Again, like the arrangement with First Central, Utter operated the office as an independent entity outside of Great American's direct supervision. Great American opened a checking account at Interchange, with exclusive signatory authority residing in the Utters and their agents. Trico continued to hold the majority of mortgages processed through Great American.

In April 1989, Trico insisted that Utter execute an indemnity/guarantee agreement in which Utter pledged to make good on any losses sustained by Trico because of the alteration of appraisals or "any problems of this nature which have already surfaced but extends to all problems of this type surfaced or not." Trico was identified as the "Lender", and Utter was the "Guarantor". In part the agreement provided:

WHEREAS, Lender has been engaged in a business relationship with Guarantor and First Central Mortgage Services, Inc. and Great American Mortgage Co., whereby they have been purchasing and servicing mortgages issued by Guarantor/and Great American Mortgage Co., and First Central Mortgage Services, Inc. and expects to continue and purchase said mortgages, and

WHEREAS, Guarantor has agreed to protect Lender from any potential foreclosure deficiency or other loss that may result from any mortgages purchased or to be purchased in the future, under certain specific circumstances, set forth below, and

WHEREAS, Rochelle Title Agency, Inc., Equishare Inc., its principals, Robert and Gail Utter, have agreed to guarantee payment to Lender in the event of any such foreclosure deficiencies or other loss.

The agreement was prepared by James Greenberg, an attorney for Trico at the instruction of Tricarico. In the agreement, Utter evidenced the transfer of title to his North Haledon property to Trico as collateral for the various guarantee agreements provided by Utter. The agreement was signed by the Utters and Tricarico on April 18, 1989.

Three days later, on April 21, 1989, suit was filed by Great American and First Central (the Great American suit). Great American and First Central named fifteen parties, including the Utters and Interchange. Trico was not named as a defendant. In the first and second counts of the complaint, Great American and First Central, alleged theft and fraudulent activities on the part of their corporate officer and office manager, Robert Utter. In the sixth count, Great American and First Central alleged that Interchange wrongfully and unlawfully accepted checks, which Utter defalcated, for deposit into checking accounts of Utter companies, namely Equishare and Rochelle Title Agency Inc., in violation of N.J.S.A. 12A:3-419.

Apparently, Utter had devised a scheme whereby he would transfer monies out of the First Central and Great American accounts at Interchange into various Utter-owned corporate accounts also at Interchange, under the guise of "escrow" or "deferred maintenance." The Utters also embezzled and converted to themselves and their controlled companies portions of certain loan and closing proceeds which were to have been remitted to third parties in accordance with the terms of the loans. In these instances, the Utters would deposit fraudulently endorsed checks into the checking accounts of the Utter controlled companies maintained at Interchange. Interchange accepted the deposits and credited Utters' accounts. Thereafter, Utter would have complete control of the funds. Interchange alleges that Utter was using some of this money to pay off the bad loans placed with Trico. Utter was also arrested on criminal charges stemming from these events in April, 1989.

Prior to committing suicide on August 8, 1989,...