W. Pleasant-CPGT, Inc. v. U.S. Home Corp.

• Decision Date: 02 May 2019
• Docket Number: DOCKET NO. A-1441-17T3
• Parties: WEST PLEASANT-CPGT, INC., Plaintiff-Respondent/Cross-Appellant, v. U.S. HOME CORPORATION, d/b/a LENNAR HOMES, Defendant-Appellant/Cross-Respondent.
• Court: New Jersey Superior Court — Appellate Division

WEST PLEASANT-CPGT, INC., Plaintiff-Respondent/Cross-Appellant, v. U.S. HOME CORPORATION, d/b/a LENNAR HOMES, Defendant-Appellant/Cross-Respondent.

DOCKET NO. A-1441-17T3

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION

Argued December 19, 2018

May 2, 2019

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

Before Judges Fuentes, Vernoia and Moynihan.

On appeal from Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-2417-11.

Bruce D. Greenberg argued the cause for appellant/cross-respondent (Lite DePalma Greenberg, LLC, attorneys; Bruce D. Greenberg, on the brief).

Deborah A. Plaia argued the cause for respondent/cross-appellant.

PER CURIAM

This appeal stems from a contract for the purchase, by defendant, U.S. Home Corporation d/b/a/ Lennar Homes (Home), of two contiguous land tracts, one owned by plaintiff, West Pleasant-CPGT, Inc. (West Pleasant) and the other by Four G's Land, LLC (Four G's). Pursuant to the contract terms, Home advanced $1,510,000 and West Pleasant delivered a note for $1,500,000 and a mortgage on its property to secure the note;¹ Four G's did not tender a mortgage on its property.

After Home voided the contract, alleging contract contingencies had not been met, ensuing contract disputes were resolved by an arbitration panel which concluded West Pleasant and Four G's were jointly and severally liable to Home for the full amount Home had advanced, including the escrowed advance, plus post-award interest. The arbitration award was confirmed and reduced to judgment against both West Pleasant and Four G's, jointly and severally; we affirmed.²

Defendant filed a foreclosure complaint against West Pleasant. Twenty-one months later, West Pleasant filed a bankruptcy petition and obtained a stay of the foreclosure proceedings. Four G's filed for bankruptcy two months thereafter. After the Bankruptcy Court proceedings, which will hereafter be discussed in more detail, Home and West Pleasant entered into a consent order that, in part, dismissed West Pleasant's bankruptcy case. The Bankruptcy Court, in a separate proceeding, granted relief from the automatic stay Four G's previously obtained.

Home obtained a $1,697,180.90 judgment, plus fees and costs, against West Pleasant in the foreclosure action. Pursuant to a writ of execution, West Pleasant's land was sold at a sheriff's sale on January 25, 2011; Home purchased the tract for $100. Home had already executed upon its judgment against Four G's and purchased the Four G's tract at a sheriff's sale for $100 on December 7, 2010.

West Pleasant and Four G's filed an action in the Law Division in July 2011 seeking a credit from Home for the fair market value of their tracts in excess of Home's judgment as of the date of the sheriff's sales. In subsequent pleadings, West Pleasant added abuse of process claims against Home. Four G's assigned its rights to West Pleasant during the pendency of the litigation.

Home appeals from a final judgment entered by the trial court on October19, 2017 vacating the judgment confirming the arbitration award and entering judgment against Home in favor of West Pleasant, individually and as assignee of Four G's, for a fair market value credit for the West Pleasant tract plus interest, contending the claim for credit was barred or otherwise precluded. West Pleasant cross-appeals from those portions of the October 19 judgment: denying it a credit for the difference between the value of the Four G's tract and the amount of Home's judgment and the value of wetlands mitigation credits which were realized by Home after it acquired the property; valuing the West Pleasant tract by reducing the number of lots; and dismissing with prejudice its abuse of process claim.

We affirm the trial court's dismissal of West Pleasant's abuse of process claim and the fair market value credit award for the Four G's property but reverse the court's fair market value credit award for the West Pleasant property.

I

Home argues West Pleasant's fair market value claim was precluded as a matter of law because West Pleasant did not move to set aside the sheriff's sale pursuant to Rule 4:65-5, or seek a fair market value claim in a deficiency action; Home claims these are the only procedures by which West Pleasant could have pursued a claim. The trial court found "no provision in the Rule barring" a "debtor from pursuing an equitable remedy through the adoption of a fair market value credit." We review the trial court's interpretation of the law de novo. Serico v. Rothberg, 234 N.J. 168, 175 (2018); see also Manalapan Realty , L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995) ("A trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference.").

Rule 4:65-5 requires a sheriff to "deliver a good and sufficient conveyance" pursuant to a sheriff's sale of real estate "unless a motion for the hearing of an objection to the sale is served" prior to the delivery of the conveyance. We agree with the trial court that the Rule pertains only to objections to the sale of the property, not the value of the property vis-à-vis the amount of the judgment sought to be satisfied - which ratio is determinable, especially in cases where nominal consideration is paid - only after the sheriff's sale.

We also reject Home's argument that a fair market value credit can be claimed only at a deficiency hearing. After satisfying the "foreclosure first requirement" before pursuing an action on a bond or note for any deficiency, a mortgagee whose debt, including interest and costs, is not satisfied by the sale in foreclosure proceedings, may institute a deficiency action within three months of the date of the sale.³ N.J.S.A. 2A:50-2. The debtor may dispute the amount of the deficiency sued for by the mortgagee in an answer to the deficiency complaint, whereupon both parties may submit "evidence as to the fair market value of the mortgaged premises at the time of the sale thereof in the foreclosure action." N.J.S.A. 2A:50-3. The court is required to "determine the amount of [the] deficiency, by deducting from the debt secured the amount determined as the fair market value of the premises." Ibid.

Those provisions, however, do not apply to business or commercial transactions. N.J.S.A. 2A:50-2.3; Brunswick Bank & Tr. v. Affiliated Bldg. Corp, 440 N.J. Super. 118, 126 (App. Div. 2015). Fair market value credits, although expressly recognized by N.J.S.A. 2A:50-3, are not limited in application only to a judgment creditor's pursuit of a deficiency judgment. Brunswick Bank & Tr. v. Heln Management LLC (Brunswick II), 453 N.J. Super. 324, 330 n.4 (App. Div. 2018). We applied equitable principles, despite the N.J.S.A. 2A:50-2.3 commercial/business exemption,

to impose a fair market value credit to prevent a windfall or where circumstances require equitable relief in the interests of justice. . . . An equity court has the inherent power to prevent a potential double recovery or windfall to a judgment creditor.

[Citibank, N.A. v. Errico, 251 N.J. Super. 236, 247 (App. Div. 1991).]

A commercial or business mortgagee, not bound by the "foreclosure first requirement," N.J.S.A. 2A:50-2.3, can choose to collect on the note without first filing a foreclosure; it can choose to pursue a deficiency or not. Under Home's argument, if a deficiency action is not filed a debtor has no right to make a fair market value claim. As Home claims in its merits brief, "Absent a deficiency action, there is no such 'double recovery' by or 'windfall' to a foreclosing mortgagee, and thus no basis for a fair market value credit." We disagree. It is evident Home, by executing on both tracts, realized more than a double recovery when, in satisfaction of its debt of approximately $1.7 million, it received land valued at over $4 million. Equity cannot aid a creditor - standing to recover far in excess of what it is owed - which seeks to protect a windfall by refraining from instituting a deficiency action.

In MMU of New York, Inc. v. Grieser, 415 N.J. Super. 37, 45 (App. Div. 2010), we concluded "even in the absence of express statutory authorization, a court has inherent equitable authority to allow a fair market value credit in order to prevent a double recovery by a creditor against a debtor." In Grieser, 415 N.J. Super. at 45, we recognized our prior holding in Morsemere Federal Savings & Loan Association v. Nicolaou, 206 N.J. Super. 637, 640-41 (App. Div. 1986) - from which the terms quoted by Home, "double recovery" and "windfall," were taken - that a judgment creditor, who also successfully bid on the foreclosed property at sheriff's sale, could not intervene in the foreclosure action to claim surplus funds from the sale. We did, however, allow the judgment creditor to apply to the trial court for a share of the surplus funds. Morsemere, 206 N.J. Super. at 643-44. Moreover, we held the judgment debtor was entitled to claim a fair market value credit of the property purchased by the judgment creditor. Id. at 645. Although we recognized the fair market valuation provisions of N.J.S.A. 2A:50-3 did not expressly apply to judgment creditors, "by analogy to and in accord with the spirit of N.J.S.A. 2A:50-3," we applied the statutory procedures allowing a debtor to establish entitlement to a fair market value credit and saw

no reason why a court of equity should not condition its award of relief to an applying creditor to prevent a possible double recovery or windfall, where the judgment creditor has purchased the property. A court of equity has the inherent power to prevent a potential double recovery or windfall to the judgment creditor who not only may profit on the purchase of the property at

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