VALLEY NATIONAL BANK v. PATYRAK REALTY, L.L.C.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is only binding on the parties in the case and its use in other cases is limited. R.1:36-3.

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

VALLEY NATIONAL BANK,

Plaintiff-Respondent,

v.

PATYRAK REALTY, L.L.C.,

Defendant,

and

JAMES PATYRAK and DEBORAH PATYRAK,

Defendants-Appellants.

_____________________________________________

October 20, 2016

Argued September 20, 2016 Decided

Before Judges Yannotti, Fasciale and Gilson.

On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-2059-11.

Vincent R. Kramer, Jr., argued the cause for appellants (Mr. Kramer and Wolfgang G. Robinson, attorneys; Mr. Kramer and Mr. Robinson, on the briefs).

Roy J. Evans argued the cause for respondent (Schenck, Price, Smith & King, LLP, attorneys; Mr. Evans and Thomas J. Cotton, on the brief).

PER CURIAM

Defendants James Patyrak and Deborah Patyrak appeal from an order entered by the Law Division on June 20, 2014, granting summary judgment to plaintiff Valley National Bank (VNB or the bank) in the amount of $290,940.21, and an order entered on March 20, 2015, dismissing their counterclaims with prejudice. For the reasons that follow, we affirm in part, reverse in part, and remand for further proceedings.

I.

This appeal arises from the following facts. On March 13, 2007, Patyrak Realty, L.L.C. (PR), executed a note in which it promised to pay VNB $750,000 over a twenty-five-year period. The note was secured by a mortgage on property located in Warren Township. Defendants each executed a guaranty, in which they agreed to pay PR's obligations under the note, if PR failed to do so.

In 2010, PR leased the mortgaged property for use as a restaurant. PR allegedly required the rental payments in order to meet its obligations under the note; however, in 2011, the tenant stopped paying rent and PR was unable to make the payments due on the note. On June 16, 2011, VNB declared PR in default. In July 2011, VNB brought this lawsuit against PR and defendants seeking the monies due under the note.

In September 2011, VNB also filed an action against PR to foreclose on the mortgage. On August 1, 2013, the court issued a final judgment of foreclosure awarding VNB $902,121.90, together with interest and "costs of this suit to be taxed." On December 3, 2013, the mortgaged property was sold at a sheriff's sale for $810,000. After deducting the sheriff's fees, VNB received $777,887.40.

Initially, PR and defendants failed to respond to the complaint in this action and a default judgment was entered against them. The trial court later set aside the default judgment against defendants and they filed an answer and a cross-claim against PR. In addition, defendants asserted counterclaims against VNB for breach of federal and state banking laws; tortious interference with economic advantage; and a violation of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -204.

VNB thereafter filed a motion for summary judgment on its affirmative claims. In support of that motion, VNB submitted a certification of a Vice President in the bank's Special Assets Department, who asserted that, after accounting for the $777,887.40, a total of $286,476.31 was due, which included $226,168.66 in principal; $2,095.21 in interest; $57,068.78 for taxes paid; $306.28 in late charges; and $837.38 for legal fees.

Defendants opposed VNB's motion and Mr. Patyrak submitted a certification in which he stated that it was not clear how VNB's Vice President had calculated the total amount due. Defendants also argued that they were entitled to a credit for the difference between the sale price of the property at auction and its fair market value (FMV).

The judge considered VNB's motion on June 20, 2014, and placed his decision on the record. The judge determined that VNB was entitled to summary judgment. The judge rejected defendants' contention that there was a genuine issue of material fact as to the amount due. The judge stated that VNB had done all that was required to support its claim, which was to submit a certification stating the total amount due.

The judge said it was defendants' obligation to come forward with evidence showing that the amount claimed was incorrect, and they had not done so. The judge pointed out that the time for discovery had expired. The judge entered a judgment for VNB in the amount of $290,940.21, which apparently included the total amount as set forth in VNB's certification, plus additional interest of $45.55 per day that had accrued since the certification was filed.

Defendants thereafter filed a motion for reconsideration, again disputing VNB's claim that $290,940.21 was due. In a certification submitted in support of this motion, Mr. Patyrak asserted that he did not have "any idea" how the bank had arrived at the amount it claimed was due.

The judge considered the reconsideration motion on October 24, 2014, and placed a decision on the record. The judge stated that defendants had not provided any basis for reconsideration of the June 20, 2014 judgment. The judge entered an order dated October 24, 2014, denying the motion.

VNB later filed a motion for summary judgment on defendants' counterclaims. The judge considered the motion on March 20, 2015, and placed his decision on the record. The judge noted that defendants had alleged that VNB tortiously interfered with PR's right to receive rental payments from its tenant, but defendants failed to present competent evidence to support that claim.

The judge also rejected defendants' claim that VNB did not mitigate damages because it failed to act on certain offers to purchase the property. The judge observed that the offers were speculative and the bank was not obligated to accept them. The judge also noted that ultimately the property was sold, and defendants had the benefit of the sale. The judge concluded that defendants failed to state a claim against the bank for failure to mitigate damages.

In addition, the judge determined that defendants had not presented sufficient evidence to support a claim against VNB under the CFA, noting that there were no allegations of any unconscionable, dishonest, illegal, or fraudulent acts on the part of the bank. Moreover, defendants had not alleged that any such acts were the proximate cause of any damages.

The judge entered an order dated March 20, 2015, dismissing defendants' counterclaims with prejudice. This appeal followed.

On appeal, defendants raise the following arguments: (1) the judge erred by granting VNB summary judgment on its affirmative claims without conducting a hearing on whether defendants were entitled to a FMV credit hearing; (2) the judge erred by allowing VNB to recover amounts that are not permitted by law; and (3) VNB was not entitled to summary judgment on the counterclaims because there were genuine issues of material fact as to those claims.

II.

We turn first to defendants' contention that the trial court erred by granting summary judgment to VNB on the affirmative claims because the court did not conduct a FMV credit hearing, and that without such a hearing, there was a genuine issue of material fact as to the amount the bank was equitably allowed to recover.

N.J.S.A. 2A:50-3 provides that in an action for a deficiency resulting from the foreclosure sale of mortgaged property, the court may deduct from the debt secured "the amount determined as the [FMV] of the premises." However, commercial mortgages are specifically excluded from this statutory scheme. N.J.S.A. 2A:50-2.3(a). Even so, our Supreme Court has held that a trial court may grant the FMV credit in the foreclosure of a commercial mortgage on "appropriate equitable bases." 79-83 Thirteenth Ave., Ltd. v. DeMarco, 44 N.J. 525, 535 (1965).

The FMV deduction is based upon the "broad equitable concept that a mortgagee is not entitled to recover more than the full amount of the mortgage debt." Id. at 534. A court may grant the credit "to prevent a windfall" or when such a credit is warranted "in the interests of justice." Citibank, N.A. v. Errico, 251 N.J. Super. 236, 247 (App. Div. 1991).

In DeMarco, the Court identified several factors a court should consider in determining whether to grant a FMV credit in the foreclosure of a commercial mortgage. DeMarco, supra, 44 N.J. at 535-36. Those factors include: (1) the policy that a mortgagor should not be personally liable for more than the difference between the FMV of the property and the debt, especially when the property is sold for a nominal price; (2) whether the party liable for the debt has shown that he or she is personally unable to pay the debt; and (3) whether the party seeking the credit has established "with precision the [FMV] of the premises in question and thus that the price realized at the sale was entirely inadequate." Ibid.

Since the FMV credit is an equitable remedy, we will not reverse the court's decision to grant or deny that relief unless the decision represents a mistaken exercise of discretion. Sears Mortgage Corp. v. Rose, 134 N.J. 326, 354 (1993) (noting that equitable remedies are reviewed only for an abuse of discretion). Generally, in determining whether the trial court mistakenly exercised its discretion, we consider whether the court "pursued a manifestly unjust course." Gittleman v. Cent. Jersey Bank & Tr. Co., 103 N.J. Super. 175, 179 (1967), rev'd on other grounds, 52 N.J. 503 (1968).

Here, defendants have not shown that the mortgaged property was sold for nominal value, nor have they established that they are unable to pay the monies owed on their personal guaranties. In addition, defendants have not shown "with precision" that the property was sold at any amount substantially less than its FMV.

We note that defendants presented the trial court with copies of certain e-mails, apparently to show that the property had a greater FMV than the $810,000 for which it sold at the sheriff's sale. The e-mails indicate that in May 2013, PR informed Mr. Patyrak that it had received offers to purchase the property for between $875,000 and $950,000, but the offers were subject to certain contingencies that were not explained. In addition, in April 2014, PR stated that a third party was ready to purchase VNB's interest for $700,000 to $720,000.

Simply put, this evidence was insufficient to show that the $810,000 received at the sheriff's sale was "entirely inadequate." Indeed, assuming the offers are indicative of the FMV of the property, the amount realized at the sale is within the range of those offers. We therefore conclude that the trial court did not err by refusing to conduct a hearing on the FMV of the property, and by refusing to grant defendants a FMV credit against the amount owed.

III.

Defendants further argue that the trial court erred by granting VNB's motion for summary judgment on its claims. Defendants contend that summary judgment was not warranted because there is a genuine issue of material fact as to the amount owed. They also contend that the court erred by allowing VNB to recover an amount that exceeds the amount owed, as established by the foreclosure judgment.

When reviewing an order granting summary judgment, we apply the same standard applied by the trial court in determining whether summary judgment should be granted. Davis v. Brickman Landscaping Ltd., 219 N.J. 395, 405 (2014). Therefore, we must determine whether, considering all of the evidence before the court, there is a "genuine issue as to any material fact challenged" and the moving party "is entitled to a judgment or order as a matter of law." R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 529 (1995).

As stated previously, a final judgment was entered in VNB's foreclosure action, which stated that as of January 23, 2013, VNB was entitled to $902,121.90, with interest and costs of suit. The judgment states that as of January 23, 2013, PR owed $716,953.66 in principal; $106,704.21 in interest; $73,257.27 for real estate taxes; and $6,206.76 in late charges.

Furthermore, the mortgaged property was sold at a sheriff's sale on December 3, 2013. According to the report of the sale, the amount due then totaled $927,580.39, which consisted of the amount of the foreclosure judgment, plus taxed costs in the amount of $7,790, and additional interest through December 3, 2013, in the amount of $17,668.49. The report states that the property was sold for $810,000, from which the sheriff's fees were deducted. On January 14, 2014, the sheriff issued a check to VNB's attorneys in the amount of $777,887.40.

In April 2014, VNB filed a motion for summary judgment in this case and indicated that $286,476.31 was due, which consisted of $226,168.66 in principal; $2,095.21 in interest; $57,068.78 for taxes paid; $306.28 in late charges; and $837.38 for legal fees. The trial court entered judgment against defendants in the amount of $290,940.21.

We are convinced that the court erred by granting VNB's motion for summary judgment because there was a genuine issue of material fact as to the amount owed. We reject the trial court's view that all VNB had to do to secure its judgment was to provide the court with a certification stating the total amount due.

Here, the record before the trial court indicated that after the property was sold in December 2013, about $124,234.50 remained due on the judgment. However, when VNB sought summary judgment in April 2014, it claimed that $286,476.31 was due. VNB did not provide a sufficient explanation for the difference.

Defendants further argue that the court erred by allowing VNB to collect more than the final judgment of foreclosure permits. In First Union Nat'l Bank v. Penn Salem Marina, Inc., 190 N.J. 342, 344-45 (2007), the Court held that in an action on a note and mortgage brought subsequent to the foreclosure action, "the amount determined in the first action is binding in the subsequent action" to the extent the note and mortgage provide for the "same categories of damages." Except for amounts that accrue after the first judgment, the amounts should be the same in both actions. Id. at 345.

Here, VNB litigated the amount due on the note in the foreclosure proceedings, and the final judgment in that action established the amount recoverable on the note, including interest, taxes, and costs of suit. In this case, VNB is seeking to recover from defendants based on their personal guaranties, which obligate them to pay the amounts due on the note. However, VNB may not seek damages that exceed the amount due as determined in the foreclosure action unless it establishes that any additional damages are in a different category of damages.

In this regard, defendants argue that the trial court erred by permitting VNB to recover $57,068.78 in taxes paid. As noted, the foreclosure judgment includes taxes paid in the amount of $73,257.27. Defendants suggest that the $57,068.78 was for taxes paid after the entry of the foreclosure judgment, although this is not clear on this record.

When a creditor incurs additional expenses after the entry of a final judgment, but before the sheriff's sale, the foreclosing bank should amend the final judgment before the sale. Resolution Tr. Corp. v. Griffin, 290 N.J. Super. 88, 91-92 (Ch. Div. 1994). If the $57,068.78 in taxes are post-judgment expenses and the judgment has not been amended to allow their recovery, VNB could not recover its tax payments from the proceeds of the sale. Id. at 92. However, the trial court may consider allowing VNB to recover the $57,068.78 in this action if it can show defendants were unjustly enriched by the tax payments. Id. at 94.

Defendants further argue that the trial court erred by permitting VNB to recover additional attorney's fees in the amount of $837.38. Rule 4:42-9(a)(4) allows attorney's fees to be awarded in a foreclosure action, but limits the amount of fees to $7,500 unless the court determines that a greater amount is warranted, and the application is supported by an affidavit of services.

Here, VNB recognizes that in the foreclosure action, it was limited to the award of fees in the amount of $7,500. VNB did not explain the basis for the award of additional attorney's fees in the amount of $837.38. We note, however, that the guaranties state that if VNB sues to collect on the guaranty, the guarantors will pay all of VNB's "[e]xpenses which are allowed by law, including reasonable attorney's fees."

Thus, on remand, VNB must establish that the additional attorney's fees it is seeking in this matter are fees incurred in this action and recoverable under defendants' guaranties. VNB also must provide the trial court with an appropriate affidavit of services showing that the amount it is seeking is reasonable.

Accordingly, we reverse the order granting VNB's motion for summary judgment and remand for further proceedings to determine the amount to which VNB is entitled on its judgment.

IV.

Defendants also argue that the trial court erred by granting summary judgment to VNB on the counterclaims. Defendants claim that they presented sufficient evidence to the trial court in opposing VNB's motion for summary judgment to support their counterclaims.

A. Violation of state and federal banking laws.

On appeal, defendants do not argue that the court erred by dismissing their claim against VNB for alleged violations of state and federal banking laws. Therefore, we conclude that defendants abandoned that claim and it was properly dismissed.

B. Tortious interference with contract/economic advantage.

Defendants alleged that VNB tortiously interfered with PR's lease with the tenants of the mortgaged property. They claimed that VNB wrongfully conspired with PR's tenants to bring about PR's default. In support of this claim, defendants submitted a certification from Mr. Patyrak in which he states that VNB not only failed to collect or account for the rental payments, it also directed PR's tenants not to pay "any more rent."

It is not clear that defendants have standing to pursue this claim since it appears to be a claim that should be asserted by PR. Nevertheless, VNB's alleged tortious interference with PR's leases arguably affected defendants' liability on their guaranties. In any event, the sole evidence that defendants submitted to support this claim was Mr. Patyrak's certification, in which he repeated what others said to him about the rent payments. The trial court correctly determined that defendants had not presented sufficient competent proof to support this claim.

Defendants further argue that the trial court erred by dismissing their claim for breach of contract and the covenant of good faith and fair dealing. Defendants note that the mortgage contained an assignment to VNB of the right to collect rents from the mortgaged property should PR default on the note. Defendants point out that the assignment of the right to collect rents was subject to a separate agreement called "Assignment of Rents and Leases."

We note that it is not clear that defendants asserted this claim in the trial court, and there is a question as to whether they have standing to pursue the claim. Even so, defendants argue on appeal that the trial court should not have granted summary judgment on this claim because there was a genuine issue of material fact as to whether VNB acted in accordance with the "Assignment of Rents and Leases." However, that document was never presented to the trial court. The trial court correctly found that defendants had not submitted sufficient evidence to support this claim.

C. CFA claim.

Defendants alleged that VNB violated the CFA by refusing to consider several offers to purchase the mortgaged property that were presented to the bank prior to the sheriff's sale, refusing to communicate with them, improperly including Ms. Patyrak as a guarantor on the note, and promoting PR's default by directing the tenant of the mortgaged property to withhold rent payments. Defendants argue that they submitted sufficient evidence to defeat VNB's motion for summary judgment on this claim.

We note that in the trial court, defendants' counsel stated that the CFA claim was "probably . . . not appropriate" and counsel failed to raise any argument opposing the grant of summary judgment to VNB on this claim. Nevertheless, the trial court determined that defendants had not presented sufficient evidence to support the claim.

A CFA claim brought by a consumer "requires proof of three elements: '1) unlawful conduct by defendant; 2) an ascertainable loss by plaintiff; and 3) a causal relationship between the unlawful conduct and the ascertainable loss.'" Manahawkin Convalescent v. O'Neill, 217 N.J. 99, 121 (2014) (quoting Bosland v. Warnock Dodge, Inc., 197 N.J. 543, 557 (2009)). Here, the trial court correctly found that defendants had not presented sufficient evidence to show that VNB engaged in any unconscionable, dishonest, illegal, or fraudulent acts. The court also correctly found that defendants had not alleged that any such unlawful acts caused them to suffer any ascertainable loss. We conclude that the court did not err by granting VNB summary judgment on the CFA claim.

Affirmed in part, reversed in part, and remanded to the trial court for further proceedings in conformity with this opinion. We do not retain jurisdiction.