Opinion
DOCKET NO. A-5755-10T2
10-18-2012
Thomas D. Flinn argued the cause for appellant (Garrity, Graham, Murphy, Garofalo & Flinn, attorneys; Timothy E. Burke and Jane Garrity-Glass, of counsel and Mr. Burke, on the briefs). Dominic V. Caruso argued the cause for respondent Glenn Peterson. Rebecca L. Rakoski argued the cause for respondent Washington Mutual Bank (Archer & Greiner, attorneys; Stephen M. Packman, Richard Grungo, Jr., and Ms. Rakoski, of counsel and on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Axelrad, Nugent and Haas.
On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-4874-08.
Thomas D. Flinn argued the cause for appellant (Garrity, Graham, Murphy, Garofalo & Flinn, attorneys; Timothy E. Burke and Jane Garrity-Glass, of counsel and Mr. Burke, on the briefs).
Dominic V. Caruso argued the cause for respondent Glenn Peterson.
Rebecca L. Rakoski argued the cause for respondent Washington Mutual Bank (Archer & Greiner, attorneys; Stephen M. Packman, Richard Grungo, Jr., and Ms. Rakoski, of counsel and on the brief). PER CURIAM
In this personal injury case, plaintiff Elliot Rojas appeals the involuntary dismissal of his claims for damages against defendants Glenn Peterson, the rent receiver for the property on which he fell, and Washington Mutual Bank (WaMu), the mortgagee of the property. We reverse and remand as to Peterson, but affirm as to WaMu.
I.
Plaintiff filed a negligence complaint on November 20, 2008, against Rifky Rubenstein, 208-210 Parker Corp., Peterson, and WaMu, seeking compensation for the injuries he suffered as a result of the failure to repair a dangerous condition that existed on the property of his apartment. Peterson filed an answer and cross-claim against the co-defendants. In lieu of an answer, WaMu filed a motion to dismiss, which was denied in March 2009. WaMu then filed an answer. The remaining defendants, Rubenstein and 208-210 Parker Corp., did not file an answer.
Plaintiff brought suit against WaMu, which held the mortgage and note on the property at the time of the accident. The assets and liabilities of WaMu were purchased by JP Morgan Chase Bank, N.A. from the FDIC on or about September 25, 2008.
WaMu moved for summary judgment, seeking dismissal of plaintiff's claims and Peterson's cross-claim. On February 1, 2011, the court denied the motion with respect to dismissal of plaintiff's claims, but granted summary judgment in favor of WaMu, dismissing Peterson's cross-claim. Peterson also filed a motion to dismiss plaintiff's complaint, which was denied on February 4, 2011.
The case proceeded to trial on March 15, 2011. At the close of plaintiff's case, the court granted Peterson's and WaMu's motions for involuntary dismissal, or alternatively, a directed verdict, by orders of March 29, 2011. On June 17, 2011, the court entered a final default judgment against Rubenstein and 208-210 Parker Corp. in the amount of $797,264.57. This appeal ensued.
II.
This case arises from injuries plaintiff suffered when he lost his balance and fell down the common staircase of his apartment after leaning on a loose banister. The following witnesses testified at trial: plaintiff; Dr. Kim Sloan, an orthopedic surgeon; Effram Sanchez, a neighbor; defendant Peterson; Anthony Shupenko, Jr., a board certified structural and building inspection engineer who performed an inspection on the property; and Jonathan Ettman, counsel to WaMu. Plaintiff also sought to present Michael Pratico, Jr. as an expert in the field of rent receivership, but the judge barred his testimony.
Plaintiff lived in an apartment on Parker Avenue in Passaic, beginning in the summer of 2002 or 2003. He testified that in late 2005, while Rubenstein was the landlord, the condition of the apartment began to deteriorate. There were defects in the roof, which caused substantial water damage; major electrical problems; decaying floor supports; raw sewage; and both the bathtub and toilet were stopped up. Plaintiff testified he complained, to no avail, to Rubenstein and the City of Passaic officials (the City) about the loose banister on the staircase.
On February 16, 2005, 208-210 Parker Corp. borrowed $730,000 from WaMu, secured by a mortgage on the apartment building. The borrower defaulted, and on November 3, 2005, WaMu filed a foreclosure complaint against 208-210 Parker Corp. and its guarantor, Rubenstein, demanding possession of the property. On June 22, 2006, final judgment in foreclosure was entered against the borrower and in favor of WaMu.
During the foreclosure proceedings, WaMu moved to have a rent receiver appointed to manage the property. On January 9, 2006, Judge Margaret Mary McVeigh entered an order appointing Peterson as the rent receiver. The order provided that Peterson take charge of and manage the mortgaged premises, and demand and collect the rent from the tenants. The order further authorized Peterson "to keep said premises insured against loss, damage by fire, or public liability and to repair and to pay taxes, assessments and water and sewer rents thereon, and otherwise to do all things necessary for the due care and proper management of the mortgaged premises[.]" Additionally, the court ordered that Peterson or any party in interest "apply to this Court for further or other instructions and for further power necessary to enable the Receiver properly to fulfill his duties as Receiver[.]"
Ettman, WaMu's attorney, sent several emails to Peterson giving him contact information for the property manager and Rubenstein's attorney, information about two tenants and their leases, and asking him if he had informed the tenants of his appointment and collected rent.
Peterson then prepared a letter to the tenants dated February 2, 2006, informing them that he had been appointed the rent receiver and that their rent payments should be made to him. Peterson went to the building on three separate occasions to hand deliver the letter to the tenants, and for those tenants he could not reach, he taped it to their doors. The letter was silent with respect to property repairs and maintenance.
Peterson did not personally conduct an inspection of the building, but he was alerted through his contractor and the Housing Authority that the condition was "horrendous," there were "sagging floors and sagging walls[,]" and sewage was "seeping from a cracked pipe in the basement[.]" However, Peterson testified he did not have enough money in his receivership account to make major repairs and he did not apply for assistance through the court. Peterson also testified that some tenants stopped paying rent. He did not take any action to compel rent payment nor did he inquire why they were not paying; he was concerned such efforts would make the situation worse because of potential habitability defenses spreading to the other tenants.
In February 2006, due to non-payment of outstanding water charges, there was a threat to turn off water service to the building. Peterson testified that at that time, he did not have money on hand to pay the bill because he did not expect to receive the first month's rent from the tenants until March 1. Peterson contacted Ettman, explained the situation, and asked if WaMu would be willing to pay the outstanding balance of $952.56. Ettman advised Peterson by letter of February 10, 2006 that after failed attempts to contact Rubenstein and the property manager about the problem, "WaMu [was] willing to pay the outstanding water bill to maintain service at the [p]roperty." WaMu paid a total of $1,057.66 to the Passaic Valley Water Commission on March 7, 2006.
Ettman testified that WaMu did not pay other bills relating to the property. WaMu did, however, obtain forced-placed insurance on the property to protect against hazards, and redeemed a tax sale certificate because "[i]t was a tax lien on the property which would have impaired [its] first priority position[.]"
In March 2006, the Passaic Fire Prevention Bureau notified Peterson about fire code violations on the property. Peterson hired a contractor, John R. Saffioti, LLC, and paid $850 to fix the code violations. At that time, Peterson also received a notice from the Housing Authority advising it was withholding housing assistance payments due to longstanding building violations that had not been fixed by the owner. Peterson testified he "made a determination [he] couldn't afford to address" the deficiencies.
In May 2006, Peterson was served with municipal complaints for building code violations. He responded by filing an order to show cause, seeking a declaration that he was immune from liability by virtue of his status as a court-appointed rent receiver. Acknowledging that "the building is in horrendous condition[,]" Peterson certified he only had $15,799.93 in his account and his contractor had advised him that a new owner would need to spend between $100,000 and $200,000 in repairs, so "plainly and simply, [he did] not have the financial means to begin such repairs." He sent Ettman a copy of the order to show cause, informing him of the return date.
In July 2006, after the final judgment of foreclosure was entered, the City agreed to withdraw the complaints with the understanding that Peterson would "take all necessary steps in [his] capacity and financial ability to secure the safety of this building prior to its sale." Peterson then withdrew his order to show cause.
WaMu sought to conduct an inspection of the property. Saffioti contacted Shupenko Engineering, Inc., with whom he had a prior relationship, to perform a visual, "[n]on-invasive inspection" that was "intended to be an overview of the property." Shupenko informed Ettman in the proposal that "any condition that is deemed to be an immediate life-safety hazard will be reported directly to the Passaic Building Department for their review and action." Shupenko's inspection was authorized by Ettman and he was escorted by Saffioti, not Peterson, through the property. Peterson testified he was unaware of the inspection until after it occurred.
Shupenko inspected the property on August 22 and 23, 2006. The inspection revealed several life-safety hazards, so Shupenko immediately submitted a report to the City and forwarded the report to Peterson. Hazards in Shupenko's formal report to WaMu, dated September 4, 2006, included "severe decay" in the floor framing "to a point where a collapse can occur"; sagging beams; decay damage to the floor joists and sill plates; inadequately supported pipes; substantial plumbing problems, including raw sewage in the basement; and electrical, heating, roofing and general interior and exterior problems. There was no reference to loose banisters. Shupenko estimated it would cost $428,200 to repair the building.
It is undisputed Daawuud Nadir, an employee of WaMu, entered the property to perform a second analysis for the bank on September 9, 2006. Peterson testified he was also unaware until trial that this inspection took place. The contents of the report were excluded from trial.
WaMu made the decision to sell the loan instead of completing the foreclosure process with a sheriff's sale. The sheriff's sale was adjourned at least five times. Ettman acknowledged the purpose of some of the adjournments was to enable WaMu to negotiate the terms of a sale of the loan. On November 7, 2006, WaMu and MS Parker Realty, LLC (MS Parker) reached an initial agreement, subject to an official agreement to be drawn up and executed, to transfer the Note for $600,000.
On November 25, 2006, plaintiff was carrying a suitcase down the stairs in his left hand as he was leaving for Puerto Rico for a family reunion. He testified he lost his balance, the banister swung out about seven inches, and he fell and broke his left leg. Plaintiff had at least seven surgeries and had metal plates placed from his knee to his ankle.
On December 14, 2006, the final judgment of foreclosure against the landlord was assigned to MS Parker. Ettman requested Peterson reimburse WaMu for $7,915.06 in property taxes and water charges and to release the remaining balance of the funds to MS Parker. Peterson made the payment, collected his rent receiver's fee, and delivered the $1,918.33 balance to MS Parker. By a consent order dated February 6, 2007, Peterson was relieved of his duties as rent receiver.
At trial, plaintiff sought to present the testimony of Pratico as an expert in the field of rent receiverships. Pratico testified he was a real estate broker, certified appraiser, and property manager. He had no formal education or training about receivers or receiverships, but had served as a receiver, through his father's company, about five months before he issued his report on this case. The court barred Pratico's expert testimony because he had no training in the field and his limited experience involved "vastly different" situations.
A copy of this report is not in the record.
At the close of plaintiff's case, the judge granted Peterson's and WaMu's motions for involuntary dismissal, or alternatively, a directed verdict. The judge found Peterson could not be held personally liable, and any liability in his official capacity as a rent receiver needed to be established by an expert. Having disallowed Pratico's testimony, the judge granted the motion for involuntary dismissal because the standard of care was not established by an expert. The judge also granted WaMu's motion, finding WaMu was not a mortgagee in possession, and therefore did not have any liability to plaintiff.
On appeal, plaintiff argues the judge erred in: (1) holding that an expert is required to prove the standard of care of a rent receiver; (2) dismissing his claims against Peterson on the ground that Peterson had no duty to protect the building's tenants from dangerous conditions; (3) dismissing his claims against WaMu, as the factual record raised a debatable question whether WaMu exercised control over the property and thereby became a mortgagee in possession; and (4) barring him from introducing WaMu's own documents as admissions by WaMu regarding knowledge of the condition of the property and regarding WaMu's justification for selling the note.
III.
Under Rule 4:37-2(b), the test for motions for involuntary dismissal is "whether the evidence, together with the legitimate inferences therefrom, could sustain a judgment in . . . favor of the party opposing the motion[.]" Dolson v. Anastasia, 55 N.J. 2, 5 (1969) (alteration in original) (internal quotation marks and citations omitted). "[I]f, accepting as true all the evidence which supports the position of the party defending against the motion and according [the party] the benefit of all inferences which can reasonably and legitimately be deduced therefrom reasonable minds could differ, the motion must be denied." Potente v. Cnty. of Hudson, 187 N.J. 103, 111 (2006) (first alteration in original) (quoting Monaco v. Hartz Mt. Corp., 178 N.J. 401, 413 (2004)). The court's function on a motion for involuntary dismissal is "quite a mechanical one" as the "court is not concerned with the worth, nature or extent (beyond a scintilla) of the evidence, but only with its existence, viewed most favorably to the party opposing the motion." Dolson, supra, 55 N.J. at 5-6.
On appeal, "we apply the same standard as the trial court[.]" Bennett v. Lugo, 368 N.J. Super. 466, 479 (App. Div.), certif. denied, 180 N.J. 457 (2004). We do not give any special deference to the legal conclusions of the trial court. Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995).
A. Peterson
Plaintiff argues the trial judge erred in dismissing his claims against Peterson because the judge erroneously found a rent receiver cannot have any personal liability for negligently performing his or her duties. We disagree.
The "primary responsibility of a court-appointed receiver is to manage the assets of the property," and this responsibility "arises from the receiver's official duties." J.L.B. Equities, Inc. v. Dumont, 310 N.J. Super. 366, 373-74 n.6 (App. Div.), certif. denied, 156 N.J. 406 (1998). Accordingly, when a receiver is appointed to manage property, the receiver acts "in [an] official capacity and [can] only be found liable in that capacity, not personally." Id. at 374.
In J.L.B., although the outcome of a negligence claim against a receiver hinged on the failure of the plaintiff creditor to intervene in the receivership termination proceedings, we also noted that the claim should only be considered against the receiver "in his official capacity" rather than against him personally. Id. at 373-74. We explained that the receiver did not fail to sell the property or collect rent as an individual, but instead "what he did or did not do was in his official capacity as a receiver." Id. at 373. Therefore, because the receiver "acted in his official capacity[,] [he] could only be found liable in that capacity, not personally." Id. at 374.
The judge relied on our decision in J.L.B., which he viewed as "telling us almost in no uncertain terms that a person appointed as a receiver cannot have any personal liability for the . . . negligent, mismanagement of the asset." After also examining case law from other jurisdictions, cited in the J.L.B. opinion, the judge concluded that even if Peterson "knew or should have known about the banister, knew or should have rather done an inspection, all of that was [] done in his capacity or not doing it in his capacity as receiver." Accordingly, the judge found Peterson had "absolutely no personal liability" and granted Peterson's motion to be dismissed from the action.
We are satisfied the court's ruling is correct and is amply supported by our decision in J.L.B. Peterson was appointed by the court as a rent receiver, with professional responsibilities. Any negligence by Peterson in failing to inspect or repair the railing was a result of his official duty as a rent receiver; he had no personal responsibility with respect to the property.
Plaintiff next argues the judge erred in dismissing all of his claims against Peterson for lack of expert testimony to prove the standard of care for a rent receiver. We reject plaintiff's argument that an expert was not required and the role of a rent receiver was within the "common knowledge" of a jury.
N.J.R.E. 702 allows a witness qualified as an expert to offer opinion testimony "[i]f scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue[.]" There are three requirements that must be met before expert testimony may be admitted:
(1) the intended testimony must concern a subject matter that is beyond the ken of the average juror; (2) the field testified to must be at a state of the art such that an expert's testimony could be sufficiently reliable; and (3) the witness must have sufficient expertise to offer the intended testimony.
[Hisenaj v. Kuehner, 194 N.J. 6, 15 (2008). See also Biunno, Weissbard & Zegas, Current N.J. Rules of Evidence, comment 1 on N.J.R.E. 702 (2012).]
The decision whether to admit expert testimony is "remitted to the sound discretion of the trial court. Absent a clear abuse of discretion, an appellate court will not interfere with the exercise of that discretion." Carey v. Lovett, 132 N.J. 44, 64 (1993). A discretionary decision on the qualifications of an expert may be reviewed for "manifest error and injustice." State v. Torres, 183 N.J. 554, 572 (2005).
Expert testimony is not required when the subject can be readily understood by jurors utilizing their common knowledge and experience, provided it is not beyond the "ken of the average juror." State v. Harvey, 121 N.J. 407, 426-27 (1990), cert. denied, 499 U.S. 931, 111 S. Ct. 1336, 113 L. Ed. 2d 268 (1991). A topic is beyond the ken of the jury and requires expert testimony to support the claim only "when the subject matter to be dealt with 'is so esoteric that jurors of common judgment and experience cannot form a valid judgment as to whether the conduct of the party was reasonable.'" Rocco v. N.J. Transit Rail Operations, Inc., 330 N.J. Super. 320, 341 (App. Div. 2000) (quoting Butler v. Acme Mkts., Inc., 89 N.J. 270, 283 (1982)).
Generally, experts are needed to establish the standard of care, such as in malpractice cases, because the jury lacks the "'requisite special knowledge, technical training and background[.]'" Kelly v. Berlin, 300 N.J. Super. 256, 265 (App. Div. 1997) (quoting Rosenberg ex rel. Rosenberg v. Cahill, 99 N.J. 318, 325 (1985)). "Experts are not needed to establish the appropriate professional standards of care where either the doctrine of res ipsa loquitur or the doctrine of common knowledge applies." Kelly, supra, 300 N.J. Super. at 265. An expert is not needed, under the common knowledge doctrine, when the issue of negligence is not technical and the "'carelessness of the defendant is readily apparent to anyone of average intelligence and ordinary experience.'" Id. at 265-66 (quoting Rosenberg, supra, 99 N.J. at 325). In that circumstance, the trial would be "essentially no different from 'an ordinary negligence case.'" Kelly, supra, 300 N.J. Super. at 266 (quoting Rosenberg, supra, 99 N.J. at 325).
The court properly concluded the issue of the standard of care of a rent receiver in his official capacity and how he breached that duty is "beyond the ken of the average juror and requires expert testimony." The relevant issue was not whether a condition, such as a broken stairway banister, constituted a dangerous condition. Rather, it was the extent to which a rent receiver had a duty to observe and repair that condition, given the court order setting forth his duties and the funds available to him. Rent receiverships are not an area commonly understood by the average person. The average juror may not even be familiar with a rent receiver at all, and therefore, to understand the duties and responsibilities a rent receiver undertakes would not be readily apparent. Instead, the level of care required by rent receivers, especially when the available funds are grossly insufficient, would need to be explained by an expert in order to provide a background for the jury. Therefore, an expert was required to advance plaintiff's claims against Peterson in his official capacity.
The court then found, however, that Pratico did not have sufficient credentials to testify as an expert, and barred his testimony. Based on our liberal approach in accessing an expert's qualifications and the resulting dismissal of plaintiff's claims against Peterson for lack of an expert, we are convinced this ruling was a manifest error and an injustice.
When the plaintiff's case requires expert testimony to determine the accepted standard of care, the trial court may dismiss the case at the end of the plaintiff's case if there is either no expert testimony or inadequate expert testimony. Hearon v. Burdette Tomlin Mem'l Hosp., 213 N.J. Super. 98, 104 (App. Div. 1986).
In order for an expert witness to be qualified, he or she "must be suitably qualified and possessed of sufficient specialized knowledge to be able to express [an expert opinion] and to explain the basis of that opinion." State v. Moore, 122 N.J. 420, 458-59 (1991) (alteration in original) (internal quotation marks and citation omitted). The Supreme Court has noted that "trial courts take a liberal approach when assessing" the qualifications of an expert. State v. Jenewicz, 193 N.J. 440, 454 (2008). "Our case law is replete with examples of the generous approach taken by our courts when qualifying experts based on training and experience." Ibid. See also Torres, supra, 183 N.J. at 572 (noting an "expert may be qualified on the basis of his experience, even when it is limited").
Moreover, any perceived deficiencies, "thinness and other vulnerabilities in an expert's background" or qualifications may "be explored through cross-examination[.]" Jenewicz, supra, 193 N.J. at 455. "That the strength of an individual's qualifications may be undermined through cross-examination is not a sound basis for precluding an expert from testifying . . . even if it likely will affect the weight that the jury will give the opinion." Ibid. Instead, "a court should simply be satisfied that the expert has a basis in knowledge, skill, education, training, or experience to be able to form an opinion[.]" Ibid. Furthermore, "[i]t is the unique role of the jury to assess the credibility of the witnesses and the weight to be given to their testimony. Expert testimony is treated no differently, and . . . [the jury is] not bound to accept an expert's opinion in whole or even in part." City of Long Branch v. Liu, 203 N.J. 464, 491 (2010).
At trial, plaintiff sought to present Pratico as an expert to discuss the standard of care of a rent receiver. Pratico testified he had an opportunity to develop an opinion "with regard to the standard of care governing a rent receiver" and "whether or not [] Peterson in his performance as rent receiver [for the subject apartment complex] met that standard of care." He testified at length about his credentials as a licensed real estate broker, state certified general appraiser, and property manager. Pratico explained that in his ten-year capacity as vice president of his property management company, he developed experience as a property manager for industrial, commercial, multi-family, and single family properties. In the management of multi-family residential properties, he
performed a host of duties[;] everything from periodically inspecting the properties and coordinating repairs and maintenance . . . , interfacing with the owner and developing strategies sometimes to reposition the properties and then handling the accounting, collecting the rents, . . . pursuing tenants who haven't paid, coordinating the eviction process and then once the monies are collected, . . . pay[ing] the bills [and] prepar[ing] statements for the owner detailing the same.
Pratico also discussed his duties and responsibilities during the prior five months serving in a receivership capacity for a mixed use property with two retail units, an office and an apartment, pursuant to a court order appointing the firm at the behest of the lender, with the consent of the owner. This included several discussions with the lender to advance funds to hire a contractor to perform some repairs to the property and to pay outstanding taxes and municipal charges. Prior to assuming the position, he investigated and researched, reviewing "trade journal articles and the like," spoke with colleagues, and "relied on counsel to provide . . . guidance."
Contrary to the court's finding, Pratico met the minimum standard required to permit him to testify as an expert. He had experience as a real estate broker, appraiser, and property manager. He also did have some experience as a rent receiver, although only for several months, and therefore he had some knowledge of a rent receiver's duties and the standard of care. There are no specific degrees or licenses required to serve as a rent receiver and Pratico performed similar duties to those performed by Peterson. The Supreme Court has found that an expert may be qualified, even on the basis of limited experience. Torres, supra, 183 N.J. at 572. Here, given New Jersey's limited approach to assessing the qualifications of an expert, Pratico's experience was sufficient to satisfy the threshold to testify as an expert.
Here, it was fundamentally unfair that plaintiff's case was dismissed against Peterson after he did present an expert, and one who had served as a rent receiver. Even if Pratico only had minimal experience on which to base his opinions, Peterson's counsel would have ample opportunity to address perceived deficiencies through cross-examination, and the factfinder ultimately would assess the weight of his testimony.
Accordingly, we reverse the dismissal of plaintiff's complaint against Peterson in his official capacity as a rent receiver, and remand for retrial. We note that although the judge made a few comments in passing at the end of his ruling alluding to Pratico's report and testimony as potentially a "net opinion," the judge performed no analysis with respect to whether the expert's opinion contained specific standards and was based on facts and data and made no express finding on that issue. See Rosenberg v. Tavorath, 352 N.J. Super. 385, 401 (App. Div. 2002) (holding that in addition to determining whether a witness is qualified to testify as an expert, the trial court must also decide whether the expert's opinion is supported by sufficient "whys and wherefores"). As Pratico's report is not contained in our record and the hearing focused solely on his credentials, we do not know the standards he relied on in forming his opinion. Nor do we know whether or not Pratico opined, for example, that, in his role as rent receiver, Peterson had a legal duty to protect the tenants from dangerous conditions, to provide liability insurance, and/or to apply to the court for further instructions for prioritizing the repairs and from the insufficient funds or for assistance in procuring insurance. Accordingly, our ruling does not preclude Peterson from filing an in limine motion to bar Pratico's testimony as a net opinion.
B. WaMu
Plaintiff argues the trial judge erred in dismissing his claims against WaMu because the determination of whether a mortgagee is a mortgagee in possession is a question of fact that should have been decided by a jury. We are not persuaded by this argument.
During foreclosure proceedings, instead of the mortgagee undertaking the responsibilities of a mortgagee in possession, a court may appoint a receiver as "a substitute for taking possession under the common law." Stewart v. Fairchild-Baldwin Co., 91 N.J. Eq. 86, 89 (E. & A. 1919). "[T]he receivership will insulate the mortgagee from tort and related landowner-type liability that may be imposed on a mortgagee in possession." 30 Myron C. Weinstein, New Jersey Practice, Law of Mortgages § 22.1 at 147 (2d ed. 2000).
When a mortgagee goes into possession of mortgaged property, the mortgagee "assumes responsibility for the management and preservation of the property." Essex Cleaning Contractors, Inc. v. Amato, 12 7 N.J. Super. 364, 366 (App. Div.) (citing Zanzonico v. Zanzonico, 2 N.J. 309, 316, cert. denied, 338 U.S. 868, 70 S. Ct. 143, 94 L. Ed. 532 (1949)), certif. denied, 65 N.J. 575 (1974). A mortgagee in possession has a duty to treat the property with the same diligence as the owner and "to keep it in good ordinary repair." Woodview Condo. Ass'n v. Shanahan, 391 N.J. Super. 170, 176 (App. Div. 2007). Accordingly, a mortgagee in possession becomes "personally liable in tort for injuries resulting either through [the mortgagee's] actionable fault in utilizing the property or by reason of [the mortgagee's] failure to perform duties imposed by law upon the owner of the land." Essex Cleaning, supra, 127 N.J. Super. at 367 (quoting George Edward Osborne, Law of Mortgages 283 (2d ed. 1970)).
Our Supreme Court has found that "the acts of a mortgagee under the circumstances, determine whether or not possession and management of the premises have been undertaken by the mortgagee." Scott v. Hoboken Bank for Sav., 126 N.J.L. 294, 298 (Sup. Ct. 1941). When the mortgagee "take[s] out of the hands of the mortgagor the management and control of the estate[,]" the mortgagee becomes a mortgagee in possession. Ibid.
In Scott, the Supreme Court held there was evidence to support the conclusion that the defendant was a mortgagee in possession and exercised control and management of the premises. Id. at 298-99. The plaintiff in that case suffered injuries from a fall caused by the negligent maintenance of a common stairway in the home where she was a tenant. Id. at 295. The mortgagee bank held the mortgage to the property when the loan went into default. Ibid. The owner of the property then entered into an agreement with the mortgagee, assigning the rents due and conferring rights upon the mortgagee, including the power of "entry and distress," the authority to collect and sue for rent in the owner's name, and the ability to reduce rent as an agent of the owner. Ibid. A representative of the mortgagee sent notice to each tenant that an agent had been appointed to collect rent and wrote a letter to the agent authorizing rent collection. Id. at 296. The mortgagee further admitted in interrogatories that it had inspected the premises and conferred with the agent regarding the repair of the staircase. Id. at 297.
The Court found, under the circumstances, that a jury could conclude "that the bank was in possession and exercised control and management of the premises." Ibid. Evidence in the record supported the finding that "the assignee had in fact assumed complete control over the premises not alone as to the collection of rents and payment of bills but also as to the making of repairs and that the owner, in the position of a rent paying tenant, had no control." Id. at 299. Moreover, the assignment agreement made clear that the owner had "no veto power over the mortgagee in the matter of repairs[,]" and "the matter was in the exclusive discretion of the defendant." Ibid.
Here, plaintiff argues that upon Peterson's appointment, Ettman "interposed himself" into Peterson's efforts to collect rent by providing Peterson with information about the tenants and asking him questions about whether he notified the tenants. Additionally, plaintiff contends Ettman and WaMu demonstrated involvement in and control of the affairs of the premises by: (1) contacting the landlord and property manager about the outstanding water bill and ultimately contacting the Water Authority to restore service; (2) making the "independent decision" to procure forced-place hazard insurance to protect the value of its collateral; (3) undertaking an independent physical inspection of the building, without any notice to or effort to obtain the authorization of Peterson; (4) sending its inspector, Nadir, into the building to confirm the findings of the first inspection; and (5) adjourning the sheriff's sale multiple times in order to negotiate the sale of the note.
Relying primarily on Scott, the court was satisfied plaintiff failed to present a factual basis for the factfinder to establish WaMu, by its undertakings, had transferred itself into a mortgagee in possession. Recognizing the mortgagee would have to exercise "sufficient dominion, control, and management over the property to warrant it being determined to be a mortgagee in possession," the court noted that the types of indicia of control and management "usually relate to elements of possession, operation, maintenance, use, repair, or control of the property including the payment of bills on a regular basis and . . . making repairs to the building."
The court held all of WaMu's actions were geared toward protecting the collateral and its own investment, rather than taking over the "control and management of the building. The record amply supports its conclusion that WaMu was not "acting as if it believed it had unfettered possession of the property." As it explained, WaMu had to pay the tax lien because it had priority over the mortgage. Nor did the payment of one water bill because Peterson did not yet have the funds on hand to keep the water from being shut off convert WaMu's status to a mortgagee in possession. Moreover, the two inspections were performed to provide information respecting the property and assist the mortgagee in making a business judgment about its asset. Similarly, WaMu obtained hazard insurance that the borrower should have purchased to protect its collateral in case of a fire or other peril. Moreover, WaMu clearly had a legal right as foreclosing mortgagee to delay the sheriff's sale.
We further note that WaMu requested the court appoint an independent rent receiver, not an agent of WaMu, to insulate it from becoming a mortgagee in possession. Peterson was not serving as an agent of WaMu or operating on WaMu's behalf. Moreover, unlike in Scott, Peterson contacted the tenants to inform them of the rent receivership and handled the collection of rent. There is no evidence WaMu collected rent from the residents. Although Ettman provided Peterson with information about the tenants and asked whether he had informed the tenants or collected rent, Ettman did not take any steps to intervene in the rent collection process. Ettman merely reached out to Peterson after his appointment as rent receiver; he did not exert any control of or management over Peterson in the collection of rent or in the making of routine decisions respecting the property. As WaMu was not liable for plaintiff's injuries as a matter of law, dismissal of the complaint against it was proper.
C. Evidentiary Ruling
Turning to plaintiff's final argument, we discern no abuse of discretion in the court's ruling barring plaintiff from introducing Nadir's 2006 inspection report and two documents pertaining to WaMu's sale of the note. See Hisenaj, supra, 194 N.J. at 12 (holding that review of a trial court's evidential rulings is "limited to examining the decision for abuse of discretion"); Bitsko v. Main Pharmacy, Inc., 289 N.J. Super. 267, 284 (App. Div. 1996) ("The trial judge's discretion in excluding evidence is broad and should stand unless so wide of the mark that it results in a manifest denial of justice.").
Plaintiff sought to offer the documents to demonstrate that WaMu exerted control of the property and had knowledge of the dangerous condition, and to establish the reason WaMu sought to sell the note. The judge appropriately concluded the documents were not relevant, N.J.R.E. 401, and, even if they were, there was already evidence in the record concerning what was in some of the documents. The documents did not demonstrate management or control of the property. The fact that an inspection occurred was already stipulated, so the actual contents of the report were not relevant to the issue of management and control of the property. Moreover, there was no dispute the property was in deplorable condition. As the inspection did not mention the stairway or banister, it could not demonstrate prior notice. Moreover, as previously discussed, WaMu's decision to sell its note was not relevant to any fact at issue in this case.
Affirmed in part (dismissal as to WaMu), and reversed and remanded in part for further proceedings against Peterson consistent with our opinion.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION