LEO TEITLEBAUM, et al. v. HALLECK ST. PROPERTIES, LLC, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-6383-03T16383-03T1

LEO TEITLEBAUM, individually

and as shareholder and officer

of Halleck St. Properties, LLC,

Plaintiff-Appellant,

v.

HALLECK ST. PROPERTIES, LLC,

and CHAIM WALTER,

Defendants,

and

MCPK REALTY, LLC, a New Jersey

limited liability company,

Defendant-Respondent.

_________________________________________

 

Argued: October 3, 2005 - Decided May 22, 2006

Before Judges Kestin, Hoens and Seltzer.

On appeal from the Superior Court of New Jersey, Civil Part, Chancery Division, Hudson County, C-11-03.

Ronald A. Berutti argued the cause for appellant (Weiner Lesniak, attorneys; Mr. Berutti, of counsel and on the brief).

Steven Nudelman argued the cause for respondent (Greenbaum, Rowe, Smith & Davis, attorneys; Dean A. Gaver and Mr. Nudelman, of counsel and on the brief).

PER CURIAM

Plaintiff, Leo Teitlebaum, appeals from an order denying his motion for partial summary judgment against MCPK Realty, LLC (MCPK), and granting MCPK's summary judgment motion. That order dismissed the second amended complaint with prejudice, and also dismissed MCPK's third-party complaint and cross-claims.

Teitlebaum alleged that he owned fifty percent of Halleck St. Properties, LLC (HSP) and that Chaim Walter owned the other fifty percent. HSP owned a parcel of real estate in Jersey City. In the initial verified complaint against HSP and Walter only, filed in the Chancery Division on February 6, 2003 with an application for an order to show cause, Teitlebaum alleged that Walter intended to sell the property for about one million dollars, had entered into a contract for sale without Teitlebaum's authorization or consent, and intended to withhold Teitlebaum's share of the proceeds.

The trial court declined to enter the order to show cause on an ex parte basis and set the matter down for argument the following day, Friday, February 7. Teitlebaum had also deposited a lis pendens with the Hudson County Register on February 6. The lis pendens was filed on February 7 with a 10:01 a.m. time stamp.

The argument on the order to show cause was not held until the following Tuesday, February 11. At its conclusion, the trial court entered an order denying the order-to-show-cause application, dismissing the complaint without prejudice to refiling in the Law Division, and discharging the lis pendens.

In the meantime, the closing on the sale of the property had occurred in the late morning or early afternoon of February 7. The lis pendens had not been served on MCPK, the purchaser. Walter, in a certification dated February 10, 2003, claimed not to have seen the lis pendens until after the closing. The record is silent as to whether the lis pendens had been indexed by the time of the closing, just a few hours, at most, after it was filed.

In explaining his reasons for the action taken on the application for the order to show cause, the complaint, and the lis pendens, Judge Olivieri said:

I can't enter an order to show cause to restrain the transfer of title. It's already been done. Correctly or . . . incorrectly. Appropriately or inappropriately. I don't make . . . that finding, because I don't have to.

Equity cannot order something done which cannot be done. And . . . I certainly cannot prohibit the transfer of property that has already been transferred. And I can't order the holding of money in escrow when the money has already been distributed.

And . . . that's why I asked the question . . . if the property had not been transferred, whether or not this would have been appropriate as an order to show cause with restraints because it only dealt with money. . . . [T]here's no longer a case in controversy before me because the relief that the plaintiff seeks in its complaint, I cannot give, because the title's been transferred.

Plaintiff filed an amended complaint in the Chancery Division nine months later, on November 16, 2003.* MCPK had been added as a defendant, along with a New York attorney and law firm that had allegedly represented HSP and Walter in the sale of the property. The second amended complaint, filed on November 20, 2003, eliminated the attorney and law firm and the causes of action asserted against them.

The second amended complaint was in five counts. In the first count, plaintiff sought a declaratory judgment against MCPK, HSP, and Walter invalidating the transfer of title, revesting title to the property in HSP, and providing that Walter was solely responsible to repay the purchase price to MCPK. The second count, invoking the doctrine of quia timet, sought a judgment establishing plaintiff's claim of title in the property to be superior to that of MCPK; declaring the deed to MCPK null and void and removing it as a cloud on title; and deeming title to be vested in HSP. The third count sought an order, pursuant to N.J.S.A. 42:2B-50a, winding up the affairs of HSP and for related relief. The fourth and fifth counts asserted causes of action in fraud and conversion against Walter, and sought compensatory and punitive damages.

On January 26, 2004, on plaintiff's request, the trial court entered a default against HSP and Walter. Accordingly, MCPK remained as the sole contesting defendant, and only counts one and two of the second amended complaint were in issue.

The matter came before the trial court on February 9, 2004. At the outset of that proceeding, the following colloquy occurred:

THE COURT: * * * What I'm trying to figure out here, gentlemen, is whether or not this is just a fancy Law Division case.

* * *

MR. BERUTTI [PLAINTIFF'S COUNSEL]: Your Honor, I don't believe it is, I think that my client has a claim to the property.

THE COURT: Well, is the only asset of the LLC the property?

MR. BERUTTI: It was, yes.

THE COURT: Yes, I understand the past tense has to be used here. That was the only asset of the property, and I read where there was a closing and the funds have been dissipated?

* * * *

Well, that's what you allege in the complaint, right?

MR. BERUTTI: Yes, I believe that's right.

THE COURT: And did your client receive any of the proceeds?

MR. BERUTTI: No[.] * * * My client has got a claim to the title.

THE COURT: Okay. Well, one of the people, one of the entities against whom your client has a claim for title is the defaulting defendant, correct?

MR. BERUTTI: The defaulting defendant transferred title.

* * * *

THE COURT: He's one of the people, you're claiming that that particular defendant violated his duty to your client?

MR. BERUTTI: That's correct.

THE COURT: By transferring the property without permission?

MR. BERUTTI: That's correct.

THE COURT: Okay. And this defendant is in here, and correct me if I'm wrong, because this is the defendant to whom the property was sold?

MR. BERUTTI: That's correct.

THE COURT: And the allegation regarding this defendant, among other things, is that it knew or should have known of the lis pendens or was on notice that there was litigation and should not have concluded or closed on the transaction?

MR. BERUTTI: That and I think that they should have been on notice by virtue of the fact that the seller, the person who sold, didn't have authority, I don't know if there's an investigation performed into that, but there's no management agreement.

THE COURT: And ultimately you seek a judgment from this court that would void that transaction that occurred about a year ago?

MR. BERUTTI: That's correct.

Counsel for MCPK, in his turn, described the closing, which he had conducted with no other attorney present, and offered some details on the disbursement of the proceeds. He concluded his colloquy with the judge by stating: "This is a Law Division case[.]"

Judge Olivieri continued the colloquy with plaintiff's counsel:

THE COURT: Well . . . counsel, you're asking this court of equity to void a transaction that occurred a year ago with this defendant?

MR. BERUTTI: Yes, your Honor.

* * *

[M]y client had all of his money tied up in this property, when the property was taken away from him and the case is dismissed, he didn't know what to do, it took him some time to get his things together and come to my firm from his old firm[.]

Further discussion ensued about the causes of the delay. The judge noted that he had "permitted the reactivation of the case," but he expressed some doubt whether equitable relief could be granted, especially so long after the transfer of title. In an exercise of discretion, however, the judge entered a case management order establishing the terms of discovery and setting dates for the next status conference and for trial.

On May 28, 2004, the matter was before the trial court on plaintiff's motion for partial summary judgment and MCPK's summary judgment motion seeking dismissal of the complaint. MCPK was represented by substituted counsel. Having reserved decision following argument, Judge Olivieri delivered his oral opinion in the matter on June 9, 2004, expressing the reasons for denying plaintiff's motion and granting MCPK's motion. He began by positing plaintiff's allegations that

the total purchase price of the property was $980,000, with net proceeds of $380,987.32 being paid to Mr. Walter at the closing, and they're gone. And among other things, . . . Mr. Teitlebaum claims . . . that Mr. Walter was not a managing member of the company, there was no operating agreement in existence, that he did not maintain the controlling interest in the company and that the defendant knew or should have known that Mr. Walter didn't have the authority to transfer.

Judge Olivieri also referred to N.J.S.A. 42:2B-27b(1), which provides: "If a limited liability company is managed by its members, unless otherwise provided in the operating agreement, each member shall have the authority to bind the limited liability company." The judge went on to say:

Now, that, of course, doesn't end the inquiry; because even though . . . Mr. Walter . . . had the authority to bind the LLC, what effect, if any, does the filing of . . . the complaint . . . in February of '03 and the subsequent lis pendens have on the transaction? Since it's clear and undisputed, more importantly, that the lis pendens was filed prior to the closing.

In order to analyze that, the court needs to look at [N.J.S.A.] 2A:15-6, et seq., deal[ing] with lis pendens. [That statute provides] in pertinent part:

"In every action, instituted in any court of this State . . ., the object of which is to enforce a lien[] upon real estate or to affect the title to real estate or a lien or encumbrance thereon, plaintiff or his attorney shall, after the filing of the complaint, file in the office of the county clerk or register of deeds and mortgages . . . a written notice of the pendency of the action, which shall set forth the title and the general object thereof, with a description of the affected real estate.

"No notice of lis pendens shall be filed in an action to recover a judgment for money or damages only."

And the purpose of that statute under the common law doctrine of lis pendens, when the property was the subject of litigation, is so neither party to the suit could convey the property and adversely affect rights of the other party. Schwartz v. Grunwald, 174 N.J. Super. 164 (Ch. Div. 1980).

And 2A:15-6 was adopted to ameliorate the hardship involved in good faith conveyances where there was no notice of a suit in the public registry. General Electric Credit Corp. v. Winnebago of New Jersey, Inc, 149 N.J. Super. 81 (App. Div. 1977). And the General Electric case . . . speaks of two separate and distinct situations when notices of lis pendens may be filed[:] they are where the object of the action is either to affect or enforce an existing lien on real estate or to affect title to real estate. Polk v. Schwartz, 166 N.J. Super. 292 (App. Div. 1979) reflects that which is stated in 2A:15-6, that a lis pendens may not be filed in an action to recover a judgment for money or damages only.

Now, in this case, in the initial complaint that was filed on February 6, 2003, . . . the property was owned by the LLC, Halleck Street Properties. And this court, having already determined that the 50 percent owner, Mr. Walter, having the authority to bind the LLC, a contract was entered into and title closed.

So, what effect does that lis pendens have on the transaction? . . . I'm now going to . . . refer to 2A:15-7(b)[;] the reason why 2A:15-7(a) is inapplicable I'll now explain: (a) says, in pertinent part, "wherein plaintiff's claim arises out of a written instrument, which instrument either is executed by defendant and identifies such real estate or appears of record." . . . Mr. Teitlebaum's claim here, such as it is, does not flow from a written instrument. In fact, it is the very written instrument, that is the deed, that he wishes to vacate.

So, the court then looks to subsection (b), which says "In an action other than one specified in subsection a., if a notice of lis pendens is filed, that notice shall have the same effect as provided in subsection a., until the entry of a determination by the court pursuant to this subsection. When a notice of lis pendens is filed in such an action, the plaintiff shall, within three days after the filing of the notice of lis pendens, serve upon the defendant a copy of the notice and of the complaint." And then the rest of 2A:15-7(b) speaks to how a notice of lis pendens can be discharged.

But it is unquestioned that once there is no longer a complaint, as existed on February 11th, dismissed by this court, for the reasons I've indicated, the lis pendens can no longer survive by statute, since there is no longer the predicate event as indicated in 2A:15-6, that is a case in controversy.

So, what then in that five day period, between February the 6th and February the 11th, are the rights and responsibilities of the parties? . . . [I]t's axiomatic, as I indicated before, that the purpose of 2A:15-6, et seq., is to protect a complainant against the transfer of property or encumbering of property in which he or she has an interest. Feld v. Kantrowitz, 99 N.J. Eq. 847 (E. & A. 1926).

In the case of Spyco, Inc. v. Demenus, 226 N.J. Super. 482 (Ch. Div. 1988), . . . Judge McGann held, among other things, that notices of Lis Pendens could not be filed against the property interests of someone, in that case a mortgagee, who is not a defendant in the underlying action.

* * * *

. . . [I]t is uncontradicted that MCPK was not a defendant in the underlying action[;] when I say underlying action I'm talking about the first complaint that was filed here. Not being named a party defendant in that matter, Mr. Teitlebaum asks this court to construe [N.J.S.A.] 2A:15-6, et seq., as having given MCPK notice or constructive notice of this action.

That argument fails on a couple of grounds. Not only does it fail on the Spyco analysis, but from a clear reading or a careful reading of the underlying complaint, the first verified complaint, if you will, Mr. Teitlebaum was not so much interested, if I may, in whether or not the real property was going to be sold, but rather how the monies, or more accurately, if the monies were going to be distributed to him. Plaintiff makes an argument that, and case law would support the argument, that as long as the complaint speaks to the plaintiff having an interest in the property and asks for relief other than money damages, a lis pendens is appropriate, and that is true. See Polk[, supra].

The ultimate problem that Mr. Teitlebaum has in analyzing this under [N.J.S.A.] 2A:15-6 is that he was not the one with the property interest, Halleck Street Properties was. And that is where Mr. Teitlebaum, in a legal sense, fails to convince this court that the notice of lis pendens that was filed on February 6 was done properly, since this court determines, looking at Fravega v. Security S & L Association, 192 N.J. Super. 213 (Ch. Div. 1983), . . . looking at the aforecited Spyco case, looking at [N.J.S.A.] 2A:15-6, et seq., the notice of lis pendens that was filed was void from its inception.

Additionally, as this court has analyzed the LLC law, as previously indicated, Mr. Walter had the authority to bind the LLC. The plaintiff continues in its argument or in its motion to argue that because of alleged irregularities in the closing itself, that this court on, if you will, public policy grounds, should void the transaction. I know of no law, statute or case law that would void an otherwise valid real estate transaction under these circumstances.

But on equitable grounds, Mr. Teitlebaum does not argue, really, that the consideration that was paid by MCPK was less than market value, his argument is more that his partner was a thief, and it may very well be that his partner, once the closing occurred, took off with the money, may very well have. But and as this court said to Mr. Teitlebaum's then counsel on February 11, 2003, the action that you have, it would seem, is for perhaps breach of fiduciary duty against Mr. Walter, which is alleged against Mr. Walter, who has defaulted.

But I see, whether it be an analysis under the law, or an analysis in an equitable context, as the plaintiff would have the court do, to punish MCPK and void a transaction which this court has held was otherwise validly entered into, and rescind this transfer of property back into Halleck Street, LLC, after and I read why Mr. Teitlebaum waited from . . . February 2003 until November [] 2003, and I am sensitive to that, having some medical/emotional problems, but there was no application by the plaintiff immediately after this court's ruling in February [] 2003 under [Rule] 4:49-2 for a reconsideration, there was no application, or I should say appeal taken from this court's ruling to dismiss. And much of what the plaintiff argues in this litigation is a rehash, almost a bootstrap nunc pro tunc back to what happened in February [] 2003.

But apart from that, . . . this court is satisfied that the transaction and this is only between Teitlebaum and MCPK, they are the plaintiff and the defendant in this matter, but the transaction between Halleck Street, with Mr. Walter serving as the representative in that transaction, and MCPK, should not be voided. Mr. Teitlebaum's complaint, and it has been his complaint since February [20]03, is with his former . . . business partner, perhaps with counsel Shafran and the other non-defaulting defendants, and presumably this case will go by way of a default judgment that will be entered against those defendants, but it's not with . . . or should not be against the defendant MCPK.

So, for all of those reasons, defendant's motion for summary judgment is granted, plaintiff's motion for partial summary judgment is denied. The defendant MCPK, if it wishes, may file an amended crossclaim, and this matter will proceed, since there are no parties left in this litigation who have not defaulted, to my knowledge, shall proceed by way of default judgment pursuant to Court Rule.

On appeal, in contending that the result reached was erroneous, plaintiff argues that the lis pendens was valid, timely, properly filed, and effective to protect his interests; and that it operated to preclude the closing. He also argues that Walter lacked the legal capacity to transfer title to the property; that "public policy compels the transaction to be voided under the circumstances surrounding the contract negotiation and closing;" that "there is no viable defense based upon delay of the plaintiff in bringing this action;" and that "the trial judge should have recused himself from further review in keeping with [Rule] 1:12-1."

Based upon our analysis of the record in the light of the written and oral arguments advanced by the parties and prevailing legal standards, we are in substantial agreement with Judge Olivieri's decisional rationale and the result he reached. Plaintiff cannot be heard to undo a contract to which he was not a party, in an action for equitable relief against an entity with which he had no legally recognized relationship and to which he attributes no conspiratorial conduct to deprive him of his interest.

To the extent we have not specifically addressed any issues raised by plaintiff on appeal, our review of the record discloses, either, that they lack sufficient merit to warrant discussion in a written opinion, R. 2:11-3(e)(1)(E), or that they were not raised before the trial court and, therefore, may not be considered on appeal. See Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973). Plaintiff is relegated to his rights at law.

 
Affirmed.

* In an order entered on October 27, 2003, the trial court had granted plaintiff's motions to reinstate the complaint and for leave to file the amended complaint.

(continued)

(continued)

15

A-6383-03T1

May 22, 2006