New Gold Equities Corp. v. Jaffe Spindler Co.

Citation453 N.J.Super. 358,181 A.3d 1050
Decision Date28 February 2018
Docket NumberDOCKET NO. A–0200–15T1
Parties NEW GOLD EQUITIES CORP., a New Jersey Corporation, Plaintiff–Appellant/Cross–Respondent, v. JAFFE SPINDLER COMPANY, a New York limited partnership, Defendant–Respondent, and 111 First Street Associates, a New Jersey Partnership, Defendant, and M & T Bank, a New York business corporation, Defendant–Respondent/Cross–Appellant.
CourtNew Jersey Superior Court – Appellate Division

Brendan M. Walsh argued the cause for appellant/cross-respondent (Pashman Stein, attorneys; Michael S. Stein and Brendan M. Walsh, of counsel and on the briefs).

S. Robert Schrager (Hodgson Russ LLP) of the New York bar, admitted pro hac vice, argued the cause for respondent/cross-appellant (Erin Nicole Teske (Hodgson Russ LLP), Jacquelyn R. Trussell (Hodgson Russ LLP) and S. Robert Schrager, attorneys; Erin Nicole Teske, Jacquelyn R. Trussell, and S. Robert Schrager, on the briefs).

Bertone Piccini, attorneys for respondent (Joseph A. Pojanowski, III, on the brief).

Before Judges Alvarez, Currier, and Geiger.

The opinion of the court was delivered by

ALVAREZ, P.J.A.D.

Plaintiff New Gold Equities Corporation (New Gold) appeals from a June 5, 2015 judgment entered in favor of defendant/cross-appellant M & T Bank (the Bank), an indenture trustee, in its negligence action concerning a $2,100,000 bond. We affirm the trial judge's decision entering judgment for the Bank, in part, because the duties of the indenture trustee were properly limited to those enumerated in the trust agreement. We also affirm the judge's post-judgment August 25, 2015 order denying the Bank's application for $360,335.85 in attorney fees and $45,707.56 in costs. The indenture agreement did not obligate New Gold to reimburse the bank for the legal expenses it incurred defending against its own negligence.

New Gold acquired the property in 1990 from Old Gold Associates (Old Gold),1 which had purchased it on December 22, 1982, from defendant Jaffe Spindler Company, LLC (Jaffe). The transaction was financed through a thirty-year commercial bond agreement, secured by a mortgage against the property, issued by the New Jersey Economic Development Authority (NJEDA).

The yearly interest rate on the bond was fixed at 13%. New Gold was required to actually pay, however, monthly interest ranging at a reduced 6.29% to 7.62%. The difference between the base rate and the monthly interest, described in the loan documents as "deferred interest," accrued but was not due if the principal balance was paid at any time during the first eleven months of the last year of the loan—between December 23, 2011, and November 22, 2012.

In other words, New Gold would not have to pay $3,714,864 in accrued but deferred interest if the principal was satisfied on or before November 22, 2012.2 New Gold did not exercise this option, thus the bond's principal balance of $2,100,000 together with the deferred interest all became due at the loan maturity date on December 22, 2012.

In 2010, the Bank became the indenture trustee, assuming the role from a series of predecessor entities. Marco Medina, a Bank employee, administered the bond from 2010 to the maturity date.

New Gold employed BLDG Management Company, Inc. (BLDG), as the property manager. Senen Bacalan was the BLDG employee responsible for the administrative tasks relative to the mortgage.

On November 12, 2012, forty days before maturity and ten days before the prepayment option expired, Bacalan sent an email to Medina requesting a payoff figure at the maturity date, December 22, 2012: the "usual status letter indicating the principal balance and per diem interest." Medina, who was entirely unaware of the deferred interest provision, did not respond until November 27, 2012, fifteen days later. He forwarded a payoff statement that read: "[t]his letter will serve as notice that on December 22, 2012, the [bond] issued in the amount of $2,100,000 shall be due and payable. Also due at this time is interest in the amount of $13,334."

After Bacalan pointed out that the payoff figures did not include a smaller subordinate bond, Medina sent Bacalan a corrected payoff reflecting an accurate total principal balance due of $2,330,000. Bacalan identified another error in that second payoff statement, the omission of the interest that had accrued on the subordinate bond. On December 18, 2012, Medina responded with a third corrected payoff, stating that an additional $16,017.34 in interest was due.

While preparing the payoff statements prior to the December 22, 2012 maturity date, Medina did not review the bond documents. Thus none of the payoff statements included any mention of the additional deferred interest.

On December 19, New Gold paid the December 18, 2012 payoff statement amounts. After the payment, Medina learned about the deferred interest clause, reviewed the terms of the bond for the first time, and notified New Gold of the additional interest due.

Bacalan, who was also unaware of the deferred interest clause, had inherited handwritten notes and calculations regarding the bond obligation from his predecessor, Patrick Knowles. Knowles, who began working at BLDG in 1990 and retired in 2011, had written "deferred int. $1,000,827.46" on a page of the mortgage schedule. Bacalan, although he had those materials, had never asked anyone about the notations, nor had he read the actual bond documents.

On February 13, 2013, Jaffe sent NJEDA a letter demanding payment of the $3,714,864 deferred interest and threatening to foreclose on the mortgage if it was not made. A parallel foreclosure proceeding was thereafter filed by Jaffe.

The indenture agreement entered into between Jaffe, New Gold's predecessor in interest Old Gold, and the NJEDA, states that the Bank's predecessor is appointed a trustee so as to "receiv[e] and apply[ ] all payments ... as hereinafter provided." The Bank's duties were expressly limited to

Section 6.3Duties of Trustee with Respect to Bond Agreement.
A. The Trustee agrees to receive all payments and deposits required to be paid under the Authority Agreement and to make all payments required to be made under the Bond and Mortgage (or under the Authority Agreement in the event the same is assigned to the holder of the Bond and Mortgage pursuant to the terms of Section "4.06" of the Bond Agreement) as follows:
i) make payments to the holder of the Existing Mortgage, or withhold such payments upon receipt of reasonable evidence that such payments have been made;
ii) pay taxes and insurance premiums;
iii) transmit the net amount due to the holder of the Mortgage and the obligee of the Bond. The holder of the Mortgage and the obligee of the Bond shall have the right to demand that the Trustee, after making payment on the Existing Mortgage, or underlying obligation thereof, remit the balance due to the obligee of the Bond by more than one (1) check and the mailing of the same to more than one (1) individual; and in which event, after notice thereof to the mortgagor, separate payments and mailings shall be made to the various participating holders and obligees according to their respective interests, as contained in the notice thereof to said mortgagor; and
iv) make prepayments only when directed by the Seller.
B. Any payments made to the Trustee on account of real estate taxes shall be held in escrow in an interest-bearing account, if permissible. The deposit shall be applied to the taxes due for the then current fiscal tax year with any overpayment or underpayment to be adjusted within sixty (60) days of the end of such period. The requirements for this deposit shall be waived for three (3) months for each quarterly tax payment theretofore made directly by the obligor required to pay such taxes provided that evidence of the payment is furnished to the holder of the Mortgage and the Trustee. In the alternative, the obligor required to pay such taxes may require the Trustee to prepay taxes out of excess tax escrow funds, if any, on deposit with the Trustee;
C. Any payments made to the Trustee on account of insurance premiums shall be held, in escrow in an interest-bearing account, if permissible, and shall be applied to the payment of such premiums. The requirement for this deposit shall not apply in any year in which the holder of the Mortgage shall be furnished with a prepaid policy for such year;D. The Trustee may rely on all certificates, documents and other proofs delivered to it by [Old Gold] pursuant to this Agreement as to the facts therein disclosed and the statements therein made.
[Old Gold] hereby acknowledges that it is familiar with all the duties of the Trustee and agrees not to interfere with the Trustee's exercise of its duties. [Old Gold] further agrees that the Trustee, the Seller and their respective employees shall not be liable for, and agrees to hold the Trustee, the Seller and their respective employees harmless against any loss or damage suffered by the Company as a result of the Trustee's good faith performance hereunder, except loss or damage resulting from the negligence or willfull misconduct of the Trustee or its employees.
E. At the direction of [Old Gold], the real estate taxes remain unpaid for the immediately preceding two consecutive quarters.
F. The Trustee agrees to make all payments required to be made promptly on receipt of funds; after said receipt of funds have been cleared and the Trustee has collected funds.

New Gold's complaint sought to cancel the mortgage securing the bond, alleging that the deferred interest was an illegal, unenforceable, and uncollectable disguised penalty. New Gold also sought judgment discharging the mortgages, liens, and encumbrances on the property, as well as damages. Jaffe counterclaimed in foreclosure and for possession.

Summary judgment motions and cross-motions were filed by the parties in both this action and Jaffe's separate foreclosure action. On August 28, 2013, among other relief, Judge Hector Velazquez...

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