Opinion
DOCKET NO. A-1473-12T3
02-05-2015
AUTOMOTIVE INNOVATIONS, INC., Plaintiff-Appellant/Cross-Respondent, v. J.P. MORGAN CHASE BANK, N.A., Defendant, and KABILE LTD., individually and derivatively on behalf of RPG INVESTMENTS, LLC; MARIANA LUKOVA KORDOVA as guardian ad litem of LILLIAN KORDOVA, individually and derivatively on behalf of RPG INVESTMENTS, LLC; and VANYA ZHELYAZKOVA IVANOVA as guardian ad litem for SUSAN KORDOVA, individually and derivatively on behalf of RPG INVESTMENTS, LLC, Defendants/Third-Party Plaintiffs-Respondents/Cross-Appellants, v. ELEGANT USA, LLC BERGEN INVESTMENTS AND HOLDINGS LLC, ORI RAAM, BOAZ RAAM, YOHANAN HARTOG, ELEGANT MARKETING, INC., and FAGUNDA INVESTMENTS LTD., Third-Party Defendants.
Gartenberg Howard, L.L.P., attorneys for appellant/cross-respondent (Thomas S. Howard and Michael R. Menter, on the brief). Law offices of Jan Meyer & Associates, P.C., attorneys for respondents/cross-appellants (Solomon Rubin, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Messano, Hayden and Sumners. On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-4000-11. Gartenberg Howard, L.L.P., attorneys for appellant/cross-respondent (Thomas S. Howard and Michael R. Menter, on the brief). Law offices of Jan Meyer & Associates, P.C., attorneys for respondents/cross-appellants (Solomon Rubin, on the brief). PER CURIAM
Following a non-jury trial, the judge dismissed the complaint of plaintiff Automotive Innovations, Inc., and entered judgment against plaintiff in favor of defendants, third-party plaintiffs, Kabile Ltd. (Kabile), and, through their respective guardians ad litem, Lillian and Susan Kordova (collectively, defendants).
Briefly stated, the evidence revealed that third-party defendant Elegant USA, LLC (Elegant) was in the business of distributing car seat covers. In 2003, it secured a loan in excess of $20 million from the Bank of New York, and in 2004, General Electric Capital Corp. (GECC) purchased the debt, thereby becoming a priority secured lender under the Uniform Commercial Code (UCC). Over the years, GECC and Elegant executed a number of amendatory loan agreements in order to keep Elegant's business afloat.
In June 2009, Kabile and Danny M. Kordova sued Elegant in New York and, on April 30, 2010, they obtained a judgment for $825,112.06. They domesticated that judgment in New Jersey on August 3, 2010.
While the litigation was pending, Kordova died in Bulgaria, leaving his minor daughters, Lillian and Susan, as his heirs. They were substituted into the litigation as defendants, third-party plaintiffs, represented by their guardians ad litem, Mariana Lukova Kordova and Vanya Zhelyazkova Ivanova, respectively.
Also in 2010, Seffi "Joseph" Janowski, began negotiating the purchase of GECC's security interest in the Elegant loan. At trial, the parties disputed Janowski's actual status. There was proof that he served as Elegant's president and CEO, but that he had no ownership interest in the company. In any event, Janowski successfully purchased GECC's security interest for $350,000 through one of his businesses, third-party defendant Bergen Investments and Holdings, LLC (Bergen).
Bergen subsequently foreclosed on its security interest and sold Elegant's collateral at public auction, where Bergen was the sole bidder. Bergen then sold the assets it had acquired to plaintiff for $400,000. Plaintiff was owned by Janowski, and it essentially continued operating the business as Elegant had.
On August 13, 2010, plaintiff filed an order to show cause and verified complaint seeking, among other things, to restrain defendants from levying upon Elegant's bank accounts then held by J.P. Morgan Chase Bank, N.A. Defendants filed an answer, together with a counterclaim and third-party complaint against Elegant, Bergen and other parties, whose identities are not relevant to this appeal, seeking to hold plaintiff and Bergen liable for the domesticated New York judgment against Elegant by contending that plaintiff was a successor entity to Elegant.
Defendants' essential contention at trial was that Janowski was a straw man, who attempted to shield others who had interests in Elegant from any further liability while at the same time allowing them to continue to profit from plaintiff's business activities as the successor entity to Elegant.
Following trial, the judge concluded that plaintiff was a successor entity to Elegant, and therefore responsible for the amount due on the domesticated New York judgment. Nevertheless, he also concluded that defendants could not levy on any of Elegant's assets that had been purchased by Bergen at public auction. The order for judgment entered November 9, 2012, dismissed plaintiff's complaint and otherwise specifically provided:
Judgment is entered . . . against [p]laintiff only on the First Count of [the] Counterclaim . . . for successor liability on the judgment entered against Elegant . . . which was docketed in . . . New Jersey
. . . in the amount of $825,112.06, plus prejudgment interest at the rate specified in R[ule] 4:42-11(a) from the date [the judgment] was docketed, . . . except such judgment may not be applied against the assets of Elegant . . . acquired by Bergen . . . at the foreclosure sale, but only against those assets acquired or created by [plaintiff] after the foreclosure sale.
On October 16, 2012, plaintiff moved for a stay pending appeal, which, on November 21, was granted subject to certain conditions. Plaintiff filed a timely appeal, and defendants filed a timely cross-appeal, specifically seeking relief from
the [j]udgment to the extent . . . it indicates that [d]efendants . . . may only execute their [j]udgment on assets acquired by [p]laintiff after the foreclosure sale and to the extent that the [j]udgment applies the New Jersey post-[j]udgment rate of interest even though the [j]udgment is for successor liability on a [j]udgment . . . entered in New York.
After the appeal was calendared, plaintiff advised the Clerk's Office that it had "made an Assignment for the Benefit of Creditors" of all its assets, including "this claim," and it requested that we "dismiss the appeal . . . and note that [plaintiff] withdr[ew] its opposition to the relief sought on the cross-appeal." In response, defendants contended "there was never a valid assignment." Defendants consented to our consideration of their cross-appeal on the papers and without oral argument.
As a result, plaintiff's appeal is hereby dismissed with prejudice. We proceed to consider the merits of defendants' cross-appeal, now unopposed, which raises two specific arguments. First, defendants contend that the judge erred by concluding they could not execute against assets now owned by plaintiff that were previously subject to the UCC lien in favor of GECC and subsequently foreclosed upon by Bergen. Second, defendants argue that instead of applying pre-judgment interest at a rate provided by our Court Rules, because the litigation involved a domesticated New York judgment, the Full Faith and Credit Clause of the United States Constitution obligated the judge to apply New York's higher post-judgment interest rate as the rate for pre-judgment interest in the order for judgment.
We have considered these arguments in light of the record and applicable legal standards. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.
I.
In his comprehensive written decision, the judge explained the arguments presented and his reason for concluding that defendants could not execute against assets owned by Elegant that had been previously subject to GECC's UCC lien and purchased by Bergen at the foreclosure sale.
[Plaintiff] claims that Bergen's acquisition of Elegant's collateral at a public auction conducted under the provisions of the UCC, foreclosed defendants' subordinate lien interest in the collateral. . . . N.Y. U.C.C. § 9-609(a)(1) permits a secured party to take possession of the collateral, while § 9-610(c)(1) permits a secured party to purchase the collateral at a public disposition. § 9-622 allows that Bergen's acceptance of the collateral in satisfaction of GECC's lien terminates all subordinate interests therein, specifically the [New York] judgment.
[Plaintiff's] legal analysis is correct. Bergen's foreclosure of GECC's lien discharged the subordinate lien held by the defendants as judgment creditors. The discharge of defendants' lien, however, is effective only as against Elegant's collateral. The discharge does not otherwise affect the validity of the [New York] judgment, as it may apply to [plaintiff's] assets, which are acquired or created after the sale of Elegant's collateral by Bergen.
Defendants contend that the judge incorrectly determined that the foreclosure of GECC's lien discharged their subordinate interest, because a judgment does not become a lien on personal property until there is a levy, which never occurred in this case. Thus, defendants argue N.Y. U.C.C. § 9-622 (Consol. 2014) does not apply. Further, since the judge determined that plaintiff was a successor entity to Elegant, there is no reason to prohibit their execution on assets that plaintiff acquired from Bergen, which had, in turn, obtained them at a UCC foreclosure sale from Elegant.
It is well-settled that "a 'trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference.'" Manahawkin Convalescent v. O'Neill, 217 N.J. 99, 115 (2014) (quoting Town of Kearny v. Brandt, 214 N.J. 76, 92 (2013)). As in this case, when "the trial court's decision constitutes a legal determination, we review it de novo." D'Agostino v. Maldonado, 216 N.J. 168, 182 (2013) (citing Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995)).
The trial judge was undoubtedly correct that under new York's version of the UCC, as purchaser of GECC's priority secured interest in Elegant's debt, Bergen's acceptance of Elegant's collateral in satisfaction terminated all subordinate interests. N.Y. U.C.C. § 9-622(a)(4) states: "A secured party's acceptance of collateral in full or partial satisfaction of the obligation it secures . . . terminates any other subordinate interest." (Emphasis added). However, defendants' judgment was not a subordinate interest in Elegant's collateral.
Under New York law, "[t]he mere entry of judgment does not make it a lien on personalty which requires either an execution or enforcement order." Cnty. Nat'l Bank v. Inter-Cnty. Farmers Coop. Ass'n, 317 N.Y.S.2d 790, 793 (Sup. Ct. 1970); see also Meyerhardt v. Heinzelman, 71 N.Y.S.2d 692, (Sup. Ct.) ("The mere docketing of a judgment does not create a lien on personal property; . . . as to personal property, a lien thereon comes into being from the time of the delivery of the execution to the proper officer to be executed." (citation omitted)), aff'd, 71 N.Y.S.2d 925 (App. Div. 1947).
The same is true under New Jersey law. See Vineland Sav. & Loan Ass'n v. Felmey, 12 N.J. Super. 384, 393 (Ch. Div. 1950) ("In the case of personalty, the lien of a judgment becomes effective upon the making of a levy . . . ."); see also N.J.S.A. 2A:17-10 ("No writ of execution shall bind the property or the goods of the person against whom such writ is sued forth, but from the time that such writ shall be delivered to the sheriff, under-sheriff, coroner or other officer, his deputy or agent, to be executed.").
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Accordingly, because defendants' judgment was not a subordinate interest in Elegant's collateral, it was not extinguished by the UCC sale, and because the court entered a judgment in favor of defendants against plaintiff based on successor liability, defendants are entitled to execute their judgment on any of plaintiff's assets. We therefore reverse that portion of the judgment that ordered defendants could not execute "against the assets of Elegant . . . acquired by Bergen . . . at the foreclosure sale." The matter is remanded to the trial court for the entry of an amended judgment that conforms with this decision.
II.
Defendants argue the judge should have applied New York's post-judgment interest rate as the pre-judgment interest rate in this judgment. Defendants contend that the post-judgment interest their New York judgment earned is a substantive part of their damages. They correctly acknowledge that "[t]here appears to be no New Jersey cases on whether New Jersey is required to recognize the post-judgment interest rate of [the rendering State]," and that courts in sister states are split on the issue. Compare Dooley v. Rubin, 618 A.2d 1014, 1017 (Pa. Super. Ct. 1993) (finding that since generally interest is payable according to the law of the place where the contract is made, the interest rate of the rendering state applies to foreign judgments transferred to Pennsylvania for enforcement), with Mike Smith Pontiac, Inc. v. Mercedes-Benz, Inc., 741 A.2d 462, 469 (Md. 1999) ("[T]he rate of post-judgment interest on a foreign judgment enforced here . . . is determined by the law of the forum (lex fori), i.e., by the Maryland rate, and not by the rate of the judgment rendering state (lex loci).").
In the absence of compelling New Jersey precedent to the contrary, we reject defendants' argument. N.J.S.A. 2A:49A-27, which is part of the Uniform Enforcement of Foreign Judgments Act (UEFJA), N.J.S.A. 2A:49A-25 to -33, provides that a foreign judgment docketed in New Jersey "has the same effect and is subject to the same procedures, defenses and proceedings for reopening, vacating, or staying as a judgment of the Superior Court of this State and may be enforced in the same manner." (Emphasis added). The UEFJA is this State's selected means for discharging its Full Faith and Credit obligations. N.J.S.A. 2A:49A-26. Accordingly, once the New York judgment was domesticated, it became enforceable in New Jersey in the manner provided by New Jersey law, and the trial judge's entry of judgment that incorporated pre-judgment interest in accordance with Rule 4:42-11(a) was proper. We therefore affirm that portion of the judgment.
Affirmed in part, reversed in part, and remanded for entry of an amended judgment. We do not retain jurisdiction.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION