Opinion
DOCKET NO. A-1979-13T2
11-16-2015
NAHID TEHRANI, Plaintiff-Respondent, v. PEMBROKE HOLDINGS, LLC (aka PEMBROKE HOLDING, LLC); PEMBROKE GROUP, INC.; PEMBROKE MANAGEMENT CO., INC.; TENNYSON WALTERS and KARLENE RAWLE-WALTERS, jointly, severally, individually, and in their capacity as officers and/or members of PEMBROKE HOLDINGS, LLC (aka PEMBROKE HOLDING, LLC); PEMBROKE GROUP, INC.; PEMBROKE MANAGEMENT CO., INC.; KARLENE RAWLE-WALTERS, ESQ., An Attorney At Law of the State of New Jersey licensed to practice law in the State of New Jersey; KARLENE RAWLE-WALTERS, ATTORNEY AT LAW, P.C., Defendants-Appellants.
Karlene Rawle-Walters, appellant pro se and attorney for all other appellants. Joseph V. Meyers, attorney for respondent.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Ostrer and Sumners. On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-2160-08. Karlene Rawle-Walters, appellant pro se and attorney for all other appellants. Joseph V. Meyers, attorney for respondent. The opinion of the court was delivered by OSTRER, J.A.D.
Defendants Karlene Rawle-Walters (Rawle-Walters), Tennyson Walters (Walters), Karlene Rawle-Walters, Attorney at Law, PC (Rawle-Walters PC), Pembroke Holdings LLC, Pembroke Group, Inc., and Pembroke Management Co., Inc., appeal from the trial court's December 20, 2013 order denying their motion to vacate a default judgment entered September 7, 2010 in favor of plaintiff Nahid Tehrani. As we conclude the motion was untimely under Rule 4:50-2, we affirm.
I.
We discern the following from the record. Beginning in 2003, plaintiff loaned significant sums of money to one or more of the defendants to fund their acquisition of real estate in New Jersey. The apparent plan was for the defendant entities to improve the properties and resell them after a relatively brief period of time. Plaintiff was promised an eighteen percent return on her investment. Documents provided at the inception of the relationship indicated that plaintiff would be provided "a first lien position against real estate property." Plaintiff made several loans and was repaid the promised interest.
However, in October 2007, interest payments on subsequent loans plaintiff made abruptly ceased. Plaintiff discovered that she did not hold a first lien on those properties. Plaintiff and three other investors — Mojtaba Yeganeh, Ali Parhizkaran, and Reza Feghhi — filed a complaint in March 2008 alleging breach of contract, which was amended in June 2009 to add claims that included fraud and legal malpractice. Defendants filed a timely answer.
A copy of the initial complaint is not included in the record, and only excerpts of the amended complaint are provided.
Eventually, the court entered an order striking defendants' answer with prejudice for failure to provide discovery. Judge Elijah L. Miller, Jr., now retired, initially entered a suppression order without prejudice in September 2009 pursuant to Rule 4:23-5(a)(1). The court denied defendants' motion to vacate the order two months later, noting that defendants were still delinquent. The judge ordered defendants to provide more specific answers to plaintiff's discovery demands by December 11, 2009. The court then suppressed defendants' answer with prejudice pursuant to Rule 4:23-5(a)(2) by order entered January 22, 2010. In Judge Miller's written decision, he highlighted defendants' failure to provide a requested accounting of the proceeds of the loans made by plaintiff. In March 2010, Judge Miller denied a motion to reconsider his January 22, 2010 order.
Plaintiff thereafter filed a motion for entry of judgment by default. Plaintiff also sought an order adding as a party defendant the professional corporation through which Rawle-Walters apparently practiced law.
The record does not clearly reflect the disposition of the claims of the other named plaintiffs — Yeganeh, Parhizkaran or Feghhi. Although defendants' responsive pleadings were suppressed as to all plaintiffs' claims, the record reflects that only Tehrani continued to prosecute her claims. Whether or not the other plaintiffs' claims are still formally pending, we choose to exercise jurisdiction over defendants' appeal.
Prior thereto, plaintiff had named "Tennyson Walters and Karlene Rawle-Walters, jointly, severally, individually, and in their capacity as officers and/or members of" the various Pembroke-named entities "and/or 'ABC Company 1-10' (being fictitious designations); [and] Karlene Rawle-Walters, Esq., an attorney at law of the State of New Jersey licensed to practice law in the State of New Jersey."
On April 21, 2010, Rawle-Walters and Walters filed a joint voluntary Chapter 7 bankruptcy petition, which automatically stayed the proceedings against them in the Law Division. Rawle-Walters and Walters listed numerous debts related to real estate properties, including obligations owed to plaintiff. They also listed numerous lawsuits, including plaintiff's.
After plaintiff moved for abstention as related to her suit, Bankruptcy Judge Rosemary Gambardella entered an order on July 16, 2010, allowing the plaintiff to proceed to final judgment in state court. The automatic stay was expressly "vacated to allow the parties to proceed to Final Judgment in the State Court before the Honorable Elijah L. Miller, Jr." The Bankruptcy Court retained, for its adjudication, the enforcement of any final judgments and the issue of non-dischargability. Shortly thereafter, plaintiff filed an adversary complaint objecting to the dischargability of the debts owed to her.
On August 25, 2010, Judge Miller conducted a proof hearing. Plaintiff was the sole witness. She testified that she was induced to make loans of over $1 million by several misrepresentations, including the false promise that her loans would be secured by mortgages. At issue were loans related to five properties and six notes. Defendants were not permitted to call witnesses, and declined to cross-examine plaintiff.
Judge Miller refused to consider a motion by defendants to vacate the default judgment; he concluded that the abstention order did not permit him to do so. At the conclusion of the proof hearing, Judge Miller granted the motion to add Rawle-Walters PC as a party defendant.
In his decision on the merits of plaintiff's claims, Judge Miller found that plaintiff had proved both breach of contract and fraud. The contract breach was grounded in the failure to make interest payments as promised, to record the mortgages, or to return the principal. The court characterized defendants' actions as a "mortgage scam" and a "shell game." He found the fraud justified piercing the corporate veil of the business entities. The court also expressed grave concerns about Rawle-Walters' failure to account for the loan payments that passed through her attorney trust account. The court also found that she owed a duty of care to plaintiff and breached that duty.
Judge Miller entered a final order of default judgment on September 7, 2010, holding the defendants jointly and severally liable for breach of contract and fraud. Their total liability was $1,827,377.34: unpaid principal of $1,191,000 and interest of $636,266.34. Judge Miller also awarded attorneys' fees and litigation costs of $42,764.72. The court separately held Rawle-Walters and her professional corporation jointly and severally liable in the amount of $1,747,026 for legal malpractice and fraud.
Defendants appealed this order in October 2010. Since the automatic stay was still in effect, we sua sponte dismissed the appeal as to Rawle-Walters and Walters without prejudice. The business entities, which were unaffected by the stay, successfully sought dismissal without prejudice as well.
In the bankruptcy proceeding, plaintiff filed a motion for summary judgment on her adversary complaint. On November 16, 2012, the Bankruptcy Court granted plaintiff's motion, declaring the debt of Rawle-Walters and Walters non-dischargeable based upon a finding of actual fraud. The court gave collateral estoppel effect to the findings of fraud made by Judge Miller. A conforming order was entered on December 7, 2012.
Defendants subsequently filed two motions for reconsideration before the Bankruptcy Court. One was filed on December 12, 2012, according to defendants' brief before us. Neither a copy of the order nor the date the motion was denied were provided. Defendants filed a second motion for reconsideration on May 30, 2013, which the Bankruptcy Court denied by order entered on September 9, 2013. The order also denied a stay of enforcement of the judgment.
Defendants appealed the Bankruptcy Court's December 6, 2012 order to the United States District Court. The District Court affirmed, finding that the Bankruptcy Court did not err in giving collateral estoppel effect to Judge Miller's findings of fraud. Walters v. Tehrani, No. 13-6544, 2015 U.S. Dist. LEXIS, at *23-35 (D.N.J. Apr. 21, 2015). Meanwhile in state court, in September 2013, plaintiff filed a motion to enforce litigant's rights based on defendants' failure to comply with an information subpoena served on them. Only then did defendants file a cross-motion seeking, among other relief, an order vacating the September 7, 2010 default judgment.
At oral argument before the Law Division, Rawle-Walters appeared pro se for herself and as counsel for the other defendants. The trial judge asked Rawle-Walters to identify the subsection of Rule 4:50-1 upon which defendants relied. Counsel initially asserted, "All of it." When pressed, she alleged that a fraud allegedly committed by plaintiff justified relief under subsection (c). The fraud consisted of plaintiff's alleged failure to pay taxes on her investment income generated by her loans to defendants. Rawle-Walters also asserted that her prior counsel's oversights in complying with discovery constituted excusable neglect under subsection (a).
The court denied defendants' motion to vacate on the ground that it was untimely, as it was filed three years after the default judgment. The court denied the motion on the merits, finding that alleged tax fraud by plaintiff was at most a defense to the case, not a basis to vacate the default judgment. The court also rejected the claim of excusable neglect, noting that Rawle-Walters was herself an attorney who understood real estate transactions and her discovery obligations.
Defendants appeal from the denial of their motion, arguing that the motion was timely and that they were entitled to relief under subsections (a) and (c). They also argue for the first time that the default judgment is void, warranting relief under subsection (d). Defendants also address the underlying merits of the court's decision to strike defendants' pleadings, which led to the entry of the default judgment.
II.
We affirm the trial court's order on the grounds that the motion was untimely. Rule 4:50-2 requires that a motion for relief under 4:50-1 be filed within a "reasonable time." Where relief is sought for the reasons set forth in Rule 4:50-1(a) ("mistake, inadvertence, surprise, or excusable neglect"), (b) ("newly discovered evidence") or (c) ("fraud"), the motion must be filed within one year of entry of the judgment.
Defendants filed their Rule 4:50-1 motion in October 2013, over three years after Judge Miller's September 7, 2010 entry of default judgment. Defendants argue that the time period under Rule 4:50-2 was tolled by the automatic stay, 11 U.S.C.A. § 362, and that the time period was extended while their reconsideration motions were pending before the Bankruptcy Court. We disagree.
The automatic stay of plaintiff's state court action against defendants terminated when the Bankruptcy Court entered its final order on December 7, 2012, declaring Rawle-Walters' and Walters' debt to plaintiff to be non-dischargeable. That is because the automatic stay provision states that, in the case of a chapter 7 petition concerning an individual, the stay continues until "the time a discharge is granted or denied". 11 U.S.C.A. § 362(c)(2)(C) (emphasis added). Contrary to defendants' contention, their motion for reconsideration did not revive and extend the automatic stay beyond December 7, 2012. See Shaw v. Ehrlich, 294 B.R. 260, 275 (W.D. Va. 2003) (holding that an automatic stay is terminated upon entry of a dismissal order "regardless of the rights of appeal and rights of reconsideration held by the Debtors").
Defendants also misplace reliance on 11 U.S.C.A. § 108(c)(2) for the proposition that the bankruptcy filing tolled and extended the time period for filing a motion under Rule 4:50-1. Section 108(c) states:
[I]f applicable nonbankruptcy law . . . fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor . . . and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of-
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) 30 days after notice of termination or expiration of the stay under section 362 . . . .
It is well settled that paragraph (1), regarding the "suspension of such period," is not a tolling provision. "[T]his language merely incorporates suspensions of deadlines that are expressly provided in other federal or state statutes." Aslanidis v. United States Lines, 7 F.3d 1067, 1073 (2d Cir. 1993); see also Nativo v. Grand Union Co., 315 N.J. Super. 185, 188 (App. Div.), certif. denied, 158 N.J. 71 (1999). Nor does paragraph (2) toll the running of time periods. Rather, it provides a one-time, thirty-day extension of deadlines, even if already expired, running from the date of notice of termination of the stay. Aslanidis, supra, 7 F.3d at 1073.
Consistent with this reasoning, we have held, with respect to statutes of limitation, that the automatic stay does not toll the running of time. Rather, a party has thirty days to file an action against which the limitations period has otherwise run. Nativo, supra, 315 N.J. Super. at 188. Courts of other jurisdictions have reached similar conclusions with respect to calculating time under court rules. See Linowiecki v. Nichols, 120 So.3d 1082, 1087-89 (Ala. Civ. App. 2013) (holding that 11 U.S.C.A. § 108(c)(2) provides only a thirty-day extension of time for filing a post-judgment motion); ECC Constr., Inc. v. Oak Park Calabasas Homeowners Ass'n, 13 Cal. Rptr.3d 580, 584 (Cal. Ct. App. 2004) (stating that section 108(c)(2) would extend time to file notice of appeal by thirty days, if that were later than the time otherwise provided); Gantt v. Gantt, 208 S.W.3d 27, 30-31 (Tex. App. 2006) (stating that section 108(c) does not toll time limits but extends appellate deadlines thirty days); see also Prod. Credit Ass'n of Minot v. Burk, 427 N.W.2d 108, 110-11 (N.D. 1988) (applying similar reasoning to interpretation of 11 U.S.C.A. § 108(b)).
Applying the same principles, the one-year period under Rule 4:50-2 is not tolled while an automatic stay is in effect. Rather, the time period continues to run but an additional thirty days is granted for filing the motion if the time for filing the motion has expired. 11 U.S.C.A. § 108(c)(2). In this case, after adding that thirty days, the time period for filing the motion expired on October 7, 2011.
We recognize that defendant now argues that the judgment should also be vacated because it was void, such relief is authorized by Rule 4:50-1(d), and is not subject to the fixed one-year time period under Rule 4:50-2. We may refuse to consider arguments not presented to the trial court. Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973). However, we are satisfied that this prayer for relief is also untimely. A motion seeking relief under subsection (d) is still subject to the "reasonable time" limitation in Rule 4:50-2. Garza v. Paone, 44 N.J. Super. 553, 557 (App. Div. 1957) (motion to vacate a judgment on the ground that the rendering court lacked personal jurisdiction must be made within a reasonable time). Inasmuch as the time for filing the motion was not tolled, defendant's delay until October 2013 to seek relief on the basis of voidness was not reasonable under the circumstances.
Given our conclusion that defendants' motion was untimely, we need not reach the merits of their claim to relief under Rule 4:50-1.
We recognize that defendants have not obtained a review on the merits of the initial decision to suppress their answers based on what the trial court deemed repeated failures to provide discovery. However, the fault is their own. Rule 4:50-1 is not the appropriate mechanism for securing relief based on an alleged error or mistake by the trial court. Defendants twice sought appellate review of the entry of the default judgment. We initially dismissed the appeal without prejudice because the automatic stay was in effect. Defendants then moved in October 2013 to reinstate the appeal, over eleven months after the stay was terminated. Plaintiff opposed defendants' motion as untimely, unless defendants posted a supersedeas bond pursuant to Rule 2:9-6. Defendants neither posted the bond nor sought relief from the requirement. We denied the motion in December 2013 without prejudice to the movant's right to file an appeal from the proceedings then pending in the trial court. --------
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION