Opinion
DOCKET NO. A-1609-12T4 DOCKET NO. A-0655-13T4 DOCKET NO. A-0656-13T4
06-28-2016
POWERHOUSE FIRST, LLC, Plaintiff-Respondent, v. WALDO JERSEY CITY, LLC, and POWERHOUSE LAND DEVELOPMENT, LLC, Defendants, and DAVID PAZDEN, Defendant-Appellant, and MICHAEL PAZDEN, Third-Party Plaintiff-Appellant, and MICHELE PAZDEN, Third-Party Plaintiff, v. POWERHOUSE FIRST, LLC, Third-Party Defendant. POWERHOUSE FIRST, LLC, Plaintiff-Respondent, v. WALDO JERSEY CITY, LLC, POWERHOUSE LAND DEVELOPMENT, LLC, STATE OF NEW JERSEY, 99 MONTGOMERY STREET, LLC, MICHAEL PAZDEN, MICHELE PAZDEN, HACBM ARCHITECTS ENGINEERS, PLANNERS, LLC, BEN BIANCHI, WILLIAM BURNS, JR., WILLIAM BURNS, SR., WILLIAM LEE WAI CHOI, SCOTT CHUNG, KIM CLARK, PETER DUNCAN, KEITH GREENGROVE, POON KOON HEI, VINCENT HINDMAN, MARIUS JUNGERHANS, ROBERT JUNGERHANS, AKIRA KOSUGI, TONY LAGNESE, QI LI, MICHAEL MADIGAN, TODD NICE, CHRIS NTAWIHA, STEVE POGORELIC, CHRIS SUMMERS, KEIKO TAKAYAMA, JUDY TANG, SHENG-YUH TANG, STEVE VOSKANIAN, and JIMMY YUNG, Defendants, and DAVID PAZDEN, Defendant-Appellant. POWERHOUSE FIRST, LLC, Plaintiff-Respondent, v. WALDO JERSEY CITY, LLC, POWERHOUSE LAND DEVELOPMENT, LLC, DAVID PAZDEN, STATE OF NEW JERSEY, 99 MONTGOMERY STREET, LLC, MICHELE PAZDEN, HACBM ARCHITECTS ENGINEERS, PLANNERS, LLC, BEN BIANCHI, WILLIAM BURNS, JR., WILLIAM BURNS, SR., WILLIAM LEE WAI CHOI, SCOTT CHUNG, KIM CLARK, PETER DUNCAN, KEITH GREENGROVE, POON KOON HEI, VINCENT HINDMAN, MARIUS JUNGERHANS, ROBERT JUNGERHANS, AKIRA KOSUGI, TONY LAGNESE, QI LI, MICHAEL MADIGAN, TODD NICE, CHRIS NTAWIHA, STEVE POGORELIC, CHRIS SUMMERS, KEIKO TAKAYAMA, JUDY TANG, SHENG-YUH TANG, STEVE VOSKANIAN, and JIMMY YUNG, Defendants, and MICHAEL PAZDEN, Defendant-Appellant.
David Pazden, appellant, argued the cause pro se in Docket Nos. A-1609-12 and A-0655-13. Michael Pazden, appellant, argued the cause pro se in Docket Nos. A-1609-12 and A-0656-13. Michael A. Saffer and Arla D. Cahill argued the cause for respondent Investors Savings Bank (Mandelbaum Salsburg, P.C., attorneys; Christine D. Petruzzell (Wilentz, Goldman & Spitzer), of counsel and on the brief in A-1609-12; Risa M. Chalfin, (Wilentz, Goldman & Spitzer), on the briefs in A-0655-13 and A-0656-13). Bray & Bray, attorneys for respondent Powerhouse First, LLC (Peter R. Bray, on the brief in A-1609-12).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Reisner, Leone and Whipple. On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-4672-09 and the Chancery Division, Hudson County, Docket No. F-44841-09. David Pazden, appellant, argued the cause pro se in Docket Nos. A-1609-12 and A-0655-13. Michael Pazden, appellant, argued the cause pro se in Docket Nos. A-1609-12 and A-0656-13. Michael A. Saffer and Arla D. Cahill argued the cause for respondent Investors Savings Bank (Mandelbaum Salsburg, P.C., attorneys; Christine D. Petruzzell (Wilentz, Goldman & Spitzer), of counsel and on the brief in A-1609-12; Risa M. Chalfin, (Wilentz, Goldman & Spitzer), on the briefs in A-0655-13 and A-0656-13). Bray & Bray, attorneys for respondent Powerhouse First, LLC (Peter R. Bray, on the brief in A-1609-12). PER CURIAM
We have consolidated three appeals for purposes of this opinion. In A-1609-12, David Pazden (David) and Michael Pazden (Michael) jointly filed a notice of appeal from an October 12, 2012 Law Division judgment in favor of Investors Savings Bank (the bank or Investors). In the Law Division action, Investors sought to collect payment on a multi-million-dollar commercial construction loan, which was issued to Waldo Jersey City (Waldo) and Powerhouse Land Development (PLD) (collectively, the corporate borrowers). Investors sued the corporate borrowers and David, who had personally guaranteed the loan.
In a January 16, 2013 order we permitted David Pazden to file a notice of appeal on his own behalf, but stated that Waldo and Powerhouse could not appeal unless represented by counsel. In a March 18, 2013 order, we clarified the January 16, 2013 order to also permit Michael Pazden to appeal, as an individual, from the following orders: the April 16, 2010 order dismissing his individual third-party complaint; the January 6, 2012 order denying his motion to intervene as an individual litigant; and the February 3, 2012 order denying reconsideration. We noted that those orders were interlocutory, and the final judgment was entered on October 12, 2012.
In A-0655-13 and A-0656-13, David and Michael, respectively, each filed a notice of appeal from the Chancery Division's August 30, 2013 final judgment of foreclosure, based on a mortgage that secured the construction loan. They also appeal from interlocutory orders dated February 2, 2012, denying Michael's intervention motion for failure to comply with the applicable Court Rules; June 15, 2012, granting summary judgment to plaintiff; and September 14, 2012, striking defendants' answers as non-contesting.
For the reasons that follow, we affirm in all three appeals.
I
It is helpful to begin with a brief overview of the parties and the litigation. David and his father Michael (collectively, appellants) were managing members of the corporate borrowers. David executed a personal guarantee promising to repay the loan in the event the corporate borrowers failed to do so. In violation of the loan agreement, Michael placed subordinate liens against the mortgaged property. He also claimed an interest in the breach of contract and foreclosure actions based on a post-default assignment of rights from the corporate borrowers, which he obtained in violation of the loan documents which provided that any such assignment would be void.
The bank initiated the Law Division and foreclosure actions in 2009. In December 2011 and January 2012, counsel for the corporate borrowers withdrew from both actions, claiming that Michael was interfering with their representation of the corporate borrowers. After the corporations failed to obtain substitute counsel, the Law Division entered a default judgment against the corporate borrowers, and entered summary judgment against David on the basis that the corporate borrowers breached the terms of the loan. The Law Division dismissed Michael's claims for lack of standing and denied his motion to intervene.
The Chancery Division similarly entered judgment against the corporate borrowers. The Chancery judge gave the Law Division's breach of contract ruling preclusive effect, and found that David and Michael lacked standing to argue that the bank breached the contract with the corporate borrowers. On appeal, David and Michael challenge the Chancery Division's entry of a foreclosure judgment in the bank's favor, both courts' dismissals of their counterclaims, and the Law Division's damages judgment against David as guarantor.
II
Next, it is helpful to focus on the loan documents. On July 10, 2006, Investors issued a loan commitment letter to Waldo for a construction loan. David Pazden signed the letter on behalf of Waldo. In a section captioned "Commitment Expiration Date" the letter provided: "This loan commitment will expire in 75 days from the date of the issuance of this commitment letter if the loan is not closed prior to that date. Any extensions of the expiration date must be made in writing." Nothing in that paragraph committed Investor to close the loan within seventy-five days. There is no dispute that Investors extended the seventy-five-day deadline, and the loan closed in September 2007.
The commitment letter contained a "Restriction on Assignment" which stated: "Neither this Commitment nor the Loan proceeds shall be assignable by the borrower without the prior written consent of the Bank. Any attempt at such assignment, without such consent, shall be void and, at the Bank's option, be deemed a default." (emphasis added). The letter also contained a "Restriction on Transfer" which provided that the "sale, conveyance, transfer . . . directly or indirectly, of the Property or any interest therein, or the sale or transfer of an interest of Borrower (either of record or beneficially)" would permit Investors to "declare the Loan immediately due and payable." In a section prohibiting "Additional Financing," the letter provided: "During the term of this Loan, the Borrower shall not obtain any additional financing or use of credit that would incur a lien on the Property or any other collateral related to the Property without the prior written consent of the Bank." This section contained a limited exception for a $700,000 second mortgage specifically permitted on page three of the letter.
Prior to the loan closing, Investors consented in writing to a modification to the restrictions on assignment and transfer, by specifically agreeing that the borrowing entity could be "a new LLC known as Powerhouse Land Development, LLC," all of whose members would be the same as those of Waldo.
The loan closed on September 14, 2007. The Loan Agreement, which David signed on behalf of Waldo, PLD, and himself as guarantor, specifically incorporated the commitment letter as one of the "Loan Documents" which, together, were to be "construed as one instrument." However, the Agreement provided that "[i]n the event of any inconsistencies between the terms of this Loan Agreement and the Loan Commitment, the terms of this Loan Agreement shall prevail." The Agreement also provided that "[t]he Loan Documents are enforceable in accordance with their terms against Borrower and Guarantor."
Like the commitment letter, the Loan Agreement prohibited the borrower, without the bank's consent, from assigning the Agreement; conveying, selling or encumbering the property; or changing the members of the borrower. Similarly, the Note provided that, absent the lender's consent, the following would be events of default: a change in the ownership of the mortgaged property, a change in the equity ownership of the borrower, or the placing of mortgages or other liens on the property.
By its terms, the Note, for which the mortgage was security, provided for interest-only payments until its maturity date of September 14, 2009. On that date, the loan became payable in full.
On August 21, 2009, Investors filed a foreclosure complaint against the corporate borrowers and David as the loan guarantor. The foreclosure complaint also named Michael and his daughter Michele as defendants, because they had placed liens on the mortgaged property. In 2011, while the foreclosure complaint was pending, Waldo transferred title to the property to Michael for one dollar, pursuant to an agreement that required him to hold the property in trust for himself, David, and Michele.
The Law Division complaint was filed against the corporate borrowers and David on September 22, 2009. At that point, the loan was due in full. It had not been paid off, and the undisputed facts of record establish that the corporate borrowers had committed numerous acts of default. The corporate borrowers and David filed an answer and counterclaim, asserting that Investors had breached the loan agreement and caused the borrowers to incur financial losses.
III
Before addressing the issues on this appeal, we briefly summarize some additional relevant procedural history. In Investors Savings Bank v. Waldo, Jersey City, LLC, 418 N.J. Super. 149 (App. Div. 2011), we addressed the Law Division's April 16, 2010 interlocutory order dismissing, "at the pleading stage," the counterclaim filed by the corporate borrowers and David (here, defendants). As previously noted, Investors had filed suit to collect on the balance of the construction loan, and defendants had filed a counterclaim asserting that plaintiff breached the loan agreement by "refusing to fully fund the loan." Id. at 152. The Law Division had dismissed the counterclaim based on language in the loan documents that the trial court interpreted as precluding defendants from asserting counterclaims in an action by Investors to collect on the loan, thus requiring defendants to assert their claims in a separate lawsuit. Id. at 152-53.
In the same April 16, 2010 order dismissing the counterclaims, the Law Division dismissed a third party complaint filed by Michael and Michele. The Law Division found that they had no standing to assert claims on behalf of Waldo and otherwise had no legal interest in the loan or its alleged breach. Michael and Michele did not move for leave to appeal from that order, and our opinion in Investors did not address it. Michael's current appeal includes the April 16, 2010 order.
In our February 11, 2011 opinion, we held that such a provision was unenforceable, because it conflicted with our courts' rules of procedure, particularly the entire controversy doctrine. Id. at 151. Consequently, we reversed the order dismissing the counterclaims, and remanded the case to the trial court for further proceedings. Our opinion did not address the merits of the counterclaims. Nor did our opinion address whether David had standing to assert the counterclaims.
Our opinion distinguished, and did not address, counterclaims in foreclosure actions, noting that the Court Rules specifically limit the types of counterclaims that can be asserted in a foreclosure case. Id. at 157 n. 4; see R. 4:64-5.
Thereafter, by order dated January 6, 2012, the Law Division granted a motion by the corporate borrowers' attorney to be relieved as counsel. The court notified David and Michael that they could not represent the corporations and gave the corporations thirty days to retain new counsel. The January 6, 2012 order also denied Michael's motion to intervene in the lawsuit. In an oral opinion placed on the record on January 6, the motion judge stated that Michael's intervention motion was untimely because the case was already scheduled for trial. He also reasoned that Michael lacked standing to intervene.
On January 17, 2012, Michael and David, acting pro se, filed a motion for reconsideration of what they characterized as the order dismissing "their Counterclaims and [T]hird Party Complaint." The Law Division denied the reconsideration motion by order dated February 3, 2012. However, Michael and David have not provided us with the transcript of the motion hearing or the judge's opinion on the motion, and hence, they have not properly perfected their appeal with respect to the February 3, 2012 order.
It is unclear whether the January 17, 2012 motion sought reconsideration of the January 6, 2012 order or some other order. We also note that the January 17, 2012 motion was accompanied by Michael's certification, asserting various interests he claimed in the litigation, including a power of attorney for David, who he claimed was mentally incapacitated. A power of attorney does not authorize a non-attorney to provide legal representation to another person. R. 1:21-1(a); Committee on the Unauthorized Practice of Law-Opinion 50, 211 N.J.L.J. 866 (2013); see also Kasharian v. Wilentz, 93 N.J. Super. 479, 482 (App. Div.), certif. denied, 48 N.J. 447 (1967).
IV
Against that procedural backdrop, we address the appeal from the Law Division order granting summary judgment. David, appearing pro se, filed opposition to Investor's summary judgment motion, and cross-moved for summary judgment. However, the corporate borrowers did not retain new counsel and did not file opposition to Investors' motion. On February 17, 2012, the Law Division judge granted Investors' unopposed summary judgment motion against the corporations. On February 27, 2012, the judge granted summary judgment against David, and denied David's cross-motion for summary judgment.
In his February 27, 2012 oral opinion, the trial judge found that David did not deny that the corporate borrowers breached the loan agreement. Instead, David claimed that the agreement was not binding on the borrowers because Investors breached the agreement. The judge found that David's assertions were not supported by the record and that Investors was entitled to summary judgment. In denying David's cross-motion, the judge also found that David's proposed counterclaims against Investors mirrored his defenses to Investors' summary judgment motion and were meritless for the same reasons.
In later denying David's motion for reconsideration, on October 12, 2012, the judge reiterated, in a written statement of reasons, that he had addressed the counterclaims in deciding the summary judgment motion. Consequently, appellants' argument - that the trial court acted in derogation of our opinion in Investors - is without merit.
As David and Michael advised us at oral argument, their appeals hinge upon their central claim that Investors breached the loan agreement. As the loan guarantor, David has standing to assert defenses that would be available to the corporate borrowers whose loan he guaranteed. See Lopresti v. Wells Fargo Bank, N.A., 435 N.J. Super. 311, 319 (App. Div.), certif. denied, 219 N.J. 629 (2014).
On the other hand, because Michael was neither a loan guarantor nor a party to the loan, he has no standing to assert the claim. His status as a shareholder of the corporate borrowers does not confer standing. See Strasenburgh v. Straubmuller, 146 N.J. 527, 550 (1996); Pepe v. Gen. Motors Accept. Corp., 254 N.J. Super. 662, 666 (App. Div.), certif. denied, 130 N.J. 11 (1992). The loan documents, to which the corporate borrowers agreed, provided that a purported assignment of a right to the loan commitment or to the loan proceeds shall be void. See Owen v. CNA Ins., 167 N.J. 450, 467-68 (2001). Consequently, Michael cannot rely on assignments from the corporate borrowers, which he claims give him rights under the loan documents.
The January 1, 2009 assignment document, which David signed on behalf of Waldo, purported to assign to Michael Waldo's "rights under its Agreements with Investors Savings Bank."
We agree with the trial judge that Michael's procedural maneuvers were also a transparent attempt to circumvent Rule 1:21-1(c), requiring that a corporation be represented by counsel. As the judge observed in denying Michael's motion on January 6, 2012, there was no need for Michael to intervene in the litigation, pro se, on Waldo's behalf. Rather, Waldo needed to hire another attorney.
We also find no abuse of the trial court's discretion in finding that Michael's intervention motion was untimely, because it was filed in December 2011, shortly before the scheduled trial date. Both Rule 4:33-1 (intervention as of right) and Rule 4:33-2 (permissive intervention) require a "timely application."
Lastly, Michael's status as a defendant in the foreclosure case did not confer standing in the Law Division action. Michael was named as a defendant in the foreclosure case because he had placed liens on the property. Those liens were not related to the loan documents, and his mere status as a lienholder did not confer on him a legally enforceable interest in the loan contract between Investors and the corporate borrowers. See EnviroFinance Group, LLC v. Envt'l Barrier Co., 440 N.J. Super. 325, 341-42 (App. Div. 2015).
Nonetheless, as set forth below, even if we consider Michael's arguments on the merits of the summary judgment motion, which are the same arguments David asserts, those arguments are entirely without merit.
Our review of a summary judgment order is de novo, employing the same Brill standard used by the trial court. Davis v. Brickman Landscaping, 219 N.J. 395, 405 (2014) (citation omitted). Having reviewed the summary judgment record de novo, we find that the Law Division properly rejected David's defenses on summary judgment. The loan documents, together with all other undisputed evidence, establishes that Investors did not breach the loan agreement. Consequently, summary judgment was properly granted in favor of Investors in the Law Division action. We affirm on this issue substantially for the reasons stated by the motion judge in his thorough oral opinion issued on February 27, 2012. We add these comments.
Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540-41 (1995).
Appellants' arguments rest heavily on the flawed premise that the loan commitment obligated Investors to close the loan within seventy-five days. They claim that Investors breached that obligation and thereby delayed the construction project. As previously noted, nothing in the loan commitment created such an obligation. To the contrary, the plain wording of the document simply provided that if the loan did not close within seventy-five days, the commitment would expire, unless Investors agreed to extend it. The other clauses on which appellants rely are equally unavailing. Those clauses, including the commitment being "subject to Investors . . . securing Participating Lenders" and securing "a plan and cost review by its construction engineer," were included for the lender's protection, and were not subject to any contractual deadline.
Further, when the corporate borrowers and David closed on the loan, a year after signing the commitment letter, they made no claim that Investors had breached the commitment letter, and they did not sign the loan agreement under protest or with any reservation of rights. "Where a party fails to declare a breach of contract, and continues to perform under the contract after learning of the breach, it may be deemed to have acquiesced in an alteration of the terms of the contract, thereby barring its enforcement." Garden State Bldgs., L.P. v. First Fid. Bank, N.A., 305 N.J. Super. 510, 524 (App Div. 1997), certif. denied, 153 N.J. 50 (1998) (citing Ballantyne House Assocs. v. City of Newark, 269 N.J. Super. 322, 334 (App. Div. 1993)); see Frank Stamato & Co. v. Lodi, 4 N.J. 14, 21 (1950) (Where a party chooses to continue to perform, following the other party's breach, he cannot later use the prior breach as "any excuse for ceasing performance on his own part." (quoting 5 Williston on Contracts (Rev. Ed.) 3749)).
Appellants contend that Investors wrongfully insisted that an existing $700,000 mortgage be paid off from the loan proceeds. However, the corporate borrowers signed the loan agreement and closed, knowing that Investors was requiring them to pay off the mortgage. See Garden State, supra, 305 N.J. Super. at 524. More importantly, appellants' brief cites to a record document memorializing the fact that Investors required a pay-off of the loan because the holder of the $700,000 mortgage refused to subordinate it to the Investors mortgage. Unless subordinated, it would not have been a "second" mortgage, and thus would not be permitted by the loan agreement.
David and Michael also claim that Investors failed to advance funds to which Investors was entitled under the loan agreement, and eventually stopped funding the loan altogether in October 2008. They claim that failure to extend loan proceeds for "soft costs" such as architectural drawings, real estate taxes, insurance premiums and other expenses, impaired their ability to obtain building permits and proceed with the project and therefore was a material breach by Investors. They also claim that Investors failed to fund the entire amount of $2,300,000 for an interest reserve, and wrongfully charged a default interest rate while money still remained in the interest reserve. They contend that those breaches of the loan agreement caused the corporate borrowers to have to expend their own funds to cover soft costs, and justified the corporate borrowers in ceasing to perform their obligations under the agreement.
In support of that claim they cite to a series of letters which Michael sent to Investors over a several month period in 2008 and 2009. However, they do not cite to any legally competent evidence in the record which would demonstrate the accuracy of the self-serving statements contained in his letters.
In the statement of facts section of their brief, appellants improperly incorporate by reference the statement of material facts which they filed in the trial court. It is not this court's obligation to sift through the appendix to find pertinent facts that might support appellants' arguments. It is their obligation to provide us with specific record citations to support their factual and legal contentions. R. 2:6-2(a)(4); see Spinks v. Twp. of Clinton, 402 N.J. Super. 465, 474-75 (App. Div. 2008), certif. denied, 197 N.J. 476 (2009).
More importantly, the evidentiary record reflects that the amounts Investors advanced for the soft costs and the interest reserve were consistent with the detailed "INITIAL BUDGET ALLOCATION" that was attached to the loan agreement. The document, which David signed on behalf of Waldo on September 14, 2007, specifically states that the borrowers "agree to the budget attached hereto and made a part hereof, which shall be applicable prior to the availability of any construction advances, for the construction project." The attached budget document was captioned "initial project advances prior to construction start." Investors later agreed to increase the pre-construction interest reserve to about $513,000. It is undisputed that construction never commenced. Appellants do not deny that Investors advanced the funds set forth in the budget, and they provide no explanation as to why Investors was obligated to pay anything more than the amounts the bank agreed to advance.
Appellants also argue in general terms that (in their words) "technical defaults" by the corporate borrowers would not necessarily justify Investors in ceasing to release loan funds. However, they do not support those bald assertions with any specifics, and their arguments are without sufficient merit to warrant further discussion. R. 2:11-3(e)(1)(E).
Appellants' argument that discovery was incomplete is without merit for the reasons stated by the trial court on October 21, 2011. The identities of the participating lenders was irrelevant to the lawsuit. The participation agreement between Investors and the participating lenders gave Investors the exclusive right to enforce the loan documents and to administer and service the loan. The participation agreement specifically provided that no provisions of the agreement were for the benefit of the borrowers. We agree with the trial court that defendants' discovery demands were "a fishing expedition," and their motions aimed at obtaining that discovery were properly denied. Their appellate arguments on this point do not warrant further discussion. R. 2:11-3(e)(1)(E).
Appellants' additional arguments on the summary judgment issue are either based on misreading of the loan documents, are not supported by their citations to the record, or are otherwise without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
In light of our disposition of this appeal, we do not address Investors' claim that David's discharge in bankruptcy renders moot his appeal of the Law Division judgment and estops him from asserting his counterclaims because he allegedly failed to disclose those claims in the bankruptcy filing. Nor do we address whether David may file an application in the Law Division to discharge the judgment against him pursuant to N.J.S.A. 2A:16-49.1. That issue is not before us.
Appellants' further arguments on the Law Division appeal are without merit and, except as addressed herein, they do not warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). They challenge the award of interest at the default rate, asserting that it was not demanded in the complaint. We disagree. The complaint demanded interest pursuant to the loan agreement, and the agreement provided for an additional five percent interest in case of a default. Contrary to appellants' argument, Investors properly funded the interest reserve and was not required to advance additional funds until construction commenced.
We reject appellants' challenge to the counsel fee award. Because a commercial loan was involved, Investors was not limited to foreclosure as its remedy for non-payment, and it was not required to foreclose on the mortgage before filing an action on the note in the Law Division. N.J.S.A. 2A:50-2.3; First Union Nat. Bank v. Penn Salem Marina, Inc., 190 N.J. 342, 351 (2007). Appellants rely on Regency Savings Bank v. Morristown Mews, L.P., 363 N.J. Super. 363 (App. Div. 2003). In that case, the bank pursued a foreclosure action, and filed a separate Law Division action solely for the purpose of collecting additional counsel fees, beyond those allowed in the foreclosure action. Id. at 370.
Regency Savings is not on point here. The Law Division action was not filed merely as a pretext to circumvent the limits set on counsel fee awards in foreclosure cases. The action on the note was hard-fought and drawn out, primarily due to appellants' procedural machinations, and it went to judgment long before the foreclosure case was decided. Further, unlike Regency Savings, appellants point to no record evidence that the foreclosure action was likely to result in full satisfaction of "the principal and interest owed." Id. at 368-69. We therefore reject appellants' argument that the Law Division should have limited the counsel fee award to the amounts permitted in a foreclosure case. See R. 4:42-9(a)(4).
As previously noted, appellants' additional appellate arguments are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We affirm the Law Division orders on appeal.
V
Turning to the foreclosure appeals, we conclude that the appeals from the final foreclosure judgment are moot. Michael and David reached a settlement with the current holder of the foreclosure judgment, Powerhouse First, LLC (Powerhouse First), and they filed a Stipulation of Dismissal of their appeal with respect to Powerhouse First. The stipulation dismissing the appeal against Powerhouse First, the current holder of the final foreclosure judgment, renders moot the appeal of that judgment. However, a settlement with Powerhouse First cannot vitiate prior orders entered in favor of Investors dismissing counterclaims appellants sought to assert against Investors. Hence, we address appellants' appeals insofar as they challenge the dismissal of the counterclaims for affirmative relief, which they asserted against Investors in the foreclosure case.
As previously noted, by order dated December 11, 2014, Investors obtained our permission to continue to appear in this appeal, in order to defend against appellants' continuing assertion of their counterclaims against Investors. In an apparent attempt to circumvent our order, on the eve of oral argument, appellants filed three motions with this court (M-006446-15, M-006447-15, and M-006448-15) to bar Investors from participating in the argument, and for related relief. We denied those motions in part, and we now deny the motions in their entirety.
Pursuant to Rule 4:64-5, only germane counterclaims may be asserted in a foreclosure case. Germane counterclaims are those claims that would serve to defeat the plaintiff's right to foreclose on the mortgage, including claims that the plaintiff "breached the underlying agreement in relation to which the mortgage was executed." Leisure Technology-Northeast, Inc., v. Klingbeil Holding Co., 137 N.J. Super. 353, 358 (App. Div. 1975); Sun NLF Ltd. P'ship v. Sasso, 313 N.J. Super. 546, 550-51 (App. Div.), certif. denied, 156 N.J. 424 (1998). In this case, the foreclosure counterclaims were germane, because if Investors breached the loan contract, and if that breach justified the mortgagor's failure to pay the mortgage, Investors might have no right to foreclose.
However, the foreclosure counterclaims were the same claims that the Law Division had earlier dismissed on summary judgment. We agree with the Chancery judge that, by virtue of the Law Division order granting summary judgment dismissing the counterclaims, David was barred by collateral estoppel from asserting those same claims in the foreclosure action. See First Union Nat. Bank, supra, 190 N.J. at 352-54.
For the reasons stated by the Chancery judge, Michael had no standing to assert those counterclaims, because he was not a party to the loan documents. In violation of the loan documents, the corporate borrowers allowed Michael to place liens and a mortgage on the property, and eventually transferred the property to him. Michael's status as a junior lienor and subsequent title owner of the property required that Investors name him as a defendant in the foreclosure action, in order to terminate his interest in the property. See Highland Lakes Country Club v. Franzino, 186 N.J. 99, 113 (2006). However, neither his liens nor his purported ownership of the property gave Michael standing to assert damage claims against Investors based on its alleged violations of the loan documents. As previously noted, the loan documents also specified that any assignment of rights to the loan proceeds would be void. Nonetheless, even if Michael had standing, the counterclaims were plainly without merit, as we concluded in our discussion of the Law Division appeal.
Nor did Michael's status as a lienholder or property owner give him standing to assert breaches of the corporate borrowers' contractual rights as a defense to the foreclosure of his interests. See EnviroFinance Group, supra, 440 N.J. Super. at 341-42. Of course, that defense would be moot in any event, since the underlying foreclosure judgment has been settled. For completeness, we also note that the Chancery judge did not abuse his discretion on February 2, 2012, when he denied Michael's request to "intervene" in the foreclosure action. Michael admitted on the record that he had failed to comply with any of the Court Rules governing such an application. --------
Appellants' additional arguments in the foreclosure appeals are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
To summarize, appellants' contentions that Investors breached the loan agreement, whether asserted as counterclaims for money damages or as defenses to Investors' Law Division and foreclosure complaints, were patently without merit and the pleadings based on those claims were properly dismissed. Accordingly we affirm in both the Law Division and Chancery appeals.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION