ROBERT BREGLIA v. NORMAN & LUBA, LLC, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2772-03T22772-03T2

ROBERT BREGLIA,

Plaintiff-Respondent,

vs.

NORMAN & LUBA, LLC, A New

Jersey Limited Liability Company

and WARREN D. SIDERMAN,

Defendants-Appellants,

and

SIX RUFFIANI INVESTMENT, a New

Jersey Limited Liability Company,

Defendant.

__________________________________

 

Submitted: October 31, 2005 - Decided:

Before Judges Cuff and Parrillo.

On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-328-03.

Warren D. Siderman, appellant pro se (Jonathan Friedman, on the brief).

Richard D. Kraus, attorney for respondent.

PER CURIAM

This appeal arises from a tax foreclosure. Defendant Warren Siderman appeals from a $248,000 judgment entered in favor of plaintiff Robert Breglia. We reverse the judgment against Siderman and remand for further proceedings.

The following facts, none of which are disputed, are derived from the pleadings. Robert Breglia lived at 680 Ramapo Road, Teaneck, his entire life. The house was left to him by his mother at the time of her death; Breglia never bothered to transfer title to his name. In 1993, Breglia lost his job and lived off his savings until 1998. At that time, believing that he had no other resources, he stopped paying the real estate taxes on his property. In due course, the Township of Teaneck sold tax sale certificates on the property. Defendant Norman & Luba, LLC (the LLC) commenced an action to foreclose the various tax sale certificates, and on March 3, 2003, a final judgment of foreclosure was entered. At that time, Breglia owed $71,878.59 in unpaid taxes and interest. Facing eviction from his home on April 29, 2003, Breglia attempted suicide by shooting himself in the head.

Breglia survived and during his treatment and subsequent counseling learned that he was not without resources. In fact, through the efforts of friends and an attorney retained on his behalf, Breglia learned that he had considerable assets. On June 5, 2003, Breglia filed a motion to set aside the foreclosure sale and the general equity judge entered an order to show cause with temporary restraints. Pending the return date of the order to show cause, the LLC was prohibited from selling or transferring the Teaneck house.

On the return date of the order to show cause, the judge continued the initial order and the restraint on the sale or transfer of the house until June 26, 2003. On that date, the parties advised the court that they were in the midst of settlement discussions and they sought an adjournment. The judge suggested entry of an order of settlement, whereby the complaint was dismissed subject to reinstatement if the settlement was not finalized within thirty days. Throughout these proceedings, defendant Siderman was acting on behalf of the LLC.

After the order was entered, Breglia's attorney continued to request information from the LLC attorney about bids on the property and the magnitude of the recently discovered termite problem in the house. Breglia's attorney reported that Siderman was not providing him with information. On July 8, 2003, twelve days after the June 26, 2003 Order of Settlement was entered, the LLC sold the property to a third party, defendant Six Ruffiani Investment, LLC (Six Ruffiani). Siderman had retained another attorney to effectuate the sale to Six Ruffiani. The record reflects that Breglia, his attorney and the LLC's attorney did not learn of the sale until October 2003. When Breglia's attorney learned of the sale, he was told by the attorney for Six Ruffiani that neither he nor his client were informed about Breglia, Breglia's claims, or the litigation.

On July 25, 2003, Breglia moved for an order to reinstate the matter; the relief was granted on August 22, 2003. By this time, the attorney originally representing the LLC was no longer representing it but had advised Breglia's attorney to contact an asset manager at the LLC. As related in an October 13, 2003 letter to the judge, Breglia's attorney reported that the property had been sold, that the attorney originally representing the LLC was not involved with the sale and was unresponsive to requests for information, that the asset manager to whom he had been referred was unresponsive, and the LLC had not provided the name of an attorney authorized to represent it. Breglia requested that the judge order the LLC to deposit the proceeds of the sale in court. In response, the judge held a hearing and entered an order on October 16, 2003, restricting the transfer of the property, and ordering the proceeds from the July sale deposited in court.

Reportedly on the direction of the judge, Breglia also filed a new complaint with an order to show cause against Siderman, the LLC, and Six Ruffiani. Breglia sought to set aside the judgment of foreclosure and punitive damages. On the same date, Siderman, through a new attorney, sent a letter to the judge explaining that he was not a party to the foreclosure action and that the sale proceeds had been dissipated. The letter closed with the statement that the LLC "would consent to the entry of a judgment in favor of the Defendants in the amount of the sale proceeds and leave the Defendant to its remedies at law."

Before the return date of the order to show cause, Siderman submitted a certification in which he stated that the dispute with Breglia had been settled and that Breglia reneged on the settlement; therefore, on behalf of the LLC, he proceeded to sell the property. On the return date of Breglia's order to show cause, the judge held that the LLC had violated her orders by selling the property. She also found that Siderman, as the sole member of the LLC, was liable to the same extent as the LLC. She proceeded to enter a judgment in the amount of $248,000, the gross proceeds from the sale of the house, against the LLC and Siderman. The judge also dismissed the complaint against Six Ruffiani.

On appeal, Siderman contends that the tax foreclosure judgment was final and not subject to vacation; therefore, the transfer of the property was proper and cannot be considered contemptuous or a fraud on the court. He also argues that the trial judge miscalculated the damages, the finding of fraud is not based on any competent credible evidence in the record, and a limited liability partner does not incur personal liability. Breglia argues that the tax foreclosure judgment was subject to vacation and should have been vacated.

The Tax Sale Law (TSL), N.J.S.A. 54:5-1 to -137, governs the creation, enforcement and collection of liens for unpaid taxes and other municipal liens on real property. As expressed by the Legislature, the TSL is a remedial statute that should be liberally construed. N.J.S.A. 54:5-3. Its purpose is to encourage the securing of marketable titles to land by barring the right of redemption through actions in the Superior Court. N.J.S.A. 54:5-85. See also Lonsk v. Pennefather, 168 N.J. Super. 178, 182 (App. Div.) (stating the public policy of New Jersey is to encourage tax sale foreclosures in order to assist municipalities in collecting delinquent taxes), certif. denied, 82 N.J. 285 (1980). As has been noted:

The underlying purpose of the statutes authorizing municipalities to sell lands for taxes is to enable the municipality to obtain the payment of its taxes without going into the real estate business. The municipality is given a wide variety of statutory methods to hold, and to proceed with, tax sales. It may sell the property therein either to third parties or to itself. It may sell to itself by various methods. When it sells to itself, it may assign the tax sale certificate to a third party. . . .

[Fid. Union Trust Co. v. City of Newark, 11 N.J. Super. 205, 208 (Cty. Ct. 1950).]

Under the TSL, unpaid real estate taxes are treated as a lien on real property and not as a personal liability of the owner. N.J.S.A. 54:5-6; Casino Reinv. Dev. Auth. v. Cohen, 321 N.J. Super. 297, 306 (App. Div. 1998). If such a lien remains unpaid "on the eleventh month of the fiscal year when the same became in arrears," the municipality may, by resolution, sell the lien in the form of a tax sale certificate for a sum equal to the unpaid taxes. N.J.S.A. 54:5-19. The certificate vests the purchaser with an "inchoate right or interest" and gives the purchaser the right to acquire title by foreclosing the equity of redemption of all outstanding interests, including that of the property owner. Gasorek v. Gruber, 126 N.J. Super. 511, 515 (App. Div. 1974).

A TSL judgment of foreclosure is deemed final upon the defendants named in the foreclosure action, as well as their heirs, devisees and personal representatives. N.J.S.A. 54:5-87. No defendant may make application to reopen the judgment more than three months from entry. Ibid. However, courts have relaxed this time period on several occasions. See M & D Assocs. v. Mandara, 366 N.J. Super. 341, 351 (App. Div. 2004) (stating that, while N.J.S.A. 54:5-87 precludes reopening a foreclosure judgment after three months, R. 4:50-1 allows for a motion to vacate within one year of judgment); Bergen-Eastern Corp. v. Koss, 178 N.J. Super 42, 45-46 (App. Div.) (permitting a seventy-four year old mentally ill woman to reopen a foreclosure judgment after the three-month period because, while she knew about the foreclosure action, she did not understand its significance), certif. granted, 87 N.J. 351, appeal dismissed, 88 N.J. 499 (1981); Bonded Certificate Corp. v. Wildey, 137 N.J. Eq. 564, 566-67 (1946) (holding N.J.S.A. 54:5-87 did not bar relief sought by heirs at law where their individual rights accrued only after their mother died and their conduct from that time exhibited no unreasonable delay).

Thus, while N.J.S.A. 54:5-87 states that "no application shall be entertained to reopen the judgment after three months from the date thereof," courts have set aside foreclosure judgments based on Rule 4:50-1. M & D Assocs., supra, 366 N.J. Super. at 351. In such foreclosure actions, where there is a conflict between the TSL and the court rules, the court rules are generally paramount. Bergen-Eastern, supra, 178 N.J. Super. at 45; Borough of New Shrewsbury v. Block 115, Lot 4, Assessed to Hathaway, 74 N.J. Super. 1, 8 (App. Div. 1962).

Under Rule 4:50-1, the court may relieve a party from a final judgment or order for the following reasons:

(a) mistake, inadvertence, surprise, or excusable neglect; (b) newly discovered evidence which would probably alter the judgment or order and which by due diligence could not have been discovered in time to move for a new trial under R. 4:49; (c) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (d) the judgment or order is void; (e) the judgment or order has been satisfied, released or discharged, or a prior judgment or order upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment or order should have prospective application; or (f) any other reason justifying relief from the operation of the judgment or order.

[R. 4:50-1.]

Subparts (a), (b), or (c) of Rule 4:50-1 allow a period of one year to bring the motion. R. 4:50-2. Otherwise, the motion to vacate must be brought within a reasonable time if the judgment is void under Rule 4:50-1(d). R. 4:50-2; see also Citibank, N.A. v. Russo, 334 N.J. Super. 346, 353 (App. Div. 2000) (stating a motion to vacate judgment must be made within a reasonable time).

A motion for vacation based on any one of these six specified grounds should be granted sparingly, and is addressed to the sole discretion of the trial court, whose determination will be left undisturbed unless it results in a clear abuse of discretion. Housing Auth. of Morristown v. Little, 135 N.J. 274, 283-84 (1994). Moreover, the motion should be made to the judge who entered judgment if he or she is still sitting in the same court. Quagliato v. Bodner, 115 N.J. Super. 133, 137 (App. Div. 1971).

Moreover, independent of any statute or rule of court, the Chancery Division also has inherent power to set aside a sale or to order redemption when there is an independent ground for equitable relief, such as fraud, accident, surprise, irregularity in the sale, and the like. Crane v. Bielski, 15 N.J. 342, 346 (1954). The power of the court to set aside such sale is unquestionable, "but its exercise, like all other judicial action, must always rest upon some consideration of justice." Hayes v. Stiger, 29 N.J. Eq. 196, 197 (Ch. 1878). In foreclosure actions, considerations of public policy and equity are also taken into account. Bron v. Weintraub, 42 N.J. 87, 94-96 (1964).

In this case, Siderman contends that the LLC acted in strict compliance with the procedural requirements of N.J.S.A. 54:5-19 to -45.4; therefore, the tax foreclosure judgment on the subject property was final and cannot be set aside. Siderman further asserts that, because Breglia failed to exercise his right to redeem the property, the LLC rightfully sold the property to Six Ruffiani. In response to these allegations, Breglia contends the foreclosure judgment should be vacated under Rule 4:50-1. Breglia's argument is based on the fact that he "was depressed to the point where he could not function properly to manage his affairs," and that Siderman's actions "are those of a thief and a scoundrel."

Breglia relies principally on Crane v. Bielski and Bergen-Eastern Corp. v. Koss. Each indisputably holds that a tax sale foreclosure judgment may be set aside beyond the three-month statutory redemption period in appropriate circumstances. Crane, supra, 15 N.J. at 347-49; Bergen-Eastern, supra, 178 N.J. Super. at 46. In each case, however, the property had not been sold to an innocent third party for value. Here, the LLC sold the property to Six Ruffiani without notice of any claim by Breglia and for a sum that Breglia has not challenged as insufficient. Once an innocent third party enters the chain of title, equitable considerations will normally preclude ousting the innocent third party. New Brunswick Sav. Bank v. Markouski, 123 N.J. 401-426 (1991). Thus, while we agree in principle that a tax foreclosure judgment may be set aside beyond the three-month statutory redemption period under compelling circumstances, the presence of the innocent third party, Six Ruffiani, precluded that remedy in this case. This is not to say, however, that the actions of Siderman, through the LLC, do not warrant judicial oversight and sanction.

November 18, 2003, was the return date of the order to show cause signed by the judge following the filing of the complaint against Siderman, the LLC, and Six Ruffiani seeking vacation of the foreclosure judgment and punitive damages. Prior to the return date, Siderman submitted a certification in which he asserted that the parties had reached a settlement but Breglia reneged. He then asserted that the property was sold to Six Ruffiani only after the matter was dismissed without prejudice and subject to reinstatement and after Breglia reneged on the settlement. On November 18, 2003, Breglia's attorney denied that he or his client reached a definitive settlement or reneged on any settlement.

Throughout the November 18 proceeding, the judge stated several times that she would not be able to resolve the matter that day. She noted that the parties disagreed about whether a settlement had been reached. She also recognized that Siderman and the LLC may not have violated any order not to sell the property because the June 26, 2003 order marking the matter settled could be interpreted as vacating the prior restraints on sale. The record also reflects the judge's deep concern about the propriety of the actions by Siderman and the LLC and the dubious nature of the claims asserted on behalf of Siderman and the LLC. We share the judge's concerns; nevertheless, the record before the court on November 18, 2003, although troubling and highly indicative of fraudulent and contemptuous behavior by the LLC and Siderman, was insufficient to support a finding of fraud and an award of damages. Therefore, we are constrained to reverse and remand for further proceedings to develop a factual record of the circumstances surrounding the sale of the property to Six Ruffiani and whether plaintiff is entitled to damages for Siderman's actions.

If the trial judge determines that the parties had not reached a settlement, as asserted by plaintiff, and that the June 26, 2003 order of settlement implicitly, if not explicitly, quite reasonably contemplated that the property would not be sold during the thirty-day period designed to consummate a settlement, and Siderman participated in the deception, we discern no bar to personal liability of Siderman. The courts of this State have recognized the participation theory of personal liability in cases involving tortious conduct of corporate officers. Saltiel v. GSI Consultants, Inc., 170 N.J. 297, 304 (2002); Reliance Ins. Co. v. Lott Group, Inc., 370 N.J. Super. 563, 580 (App. Div.), certif. denied, 182 N.J. 149 (2004). Under the participation theory, an individual is personally liable for all torts he or she commits, even though the person is acting in his or her official capacity as an officer or agent of a corporation; and it is of no consequence that the corporation may also be liable. Saltiel, supra, 170 N.J. at 304; Metuchen Sav. Bank v. Pierini, 377 N.J. Super. 154, 161-62 (2005); Reliance Ins., supra, 370 N.J. Super. at 580. Ibid.

Under this theory, corporate officers are liable for their torts, Rosbac Industries, Inc. v. Chartpak, 204 N.J. Super. 149, 156 (App. Div. 1985); Kugler v. Koscot Interplanetary, Inc., 120 N.J. Super. 216, 255-56 (App. Div. 1972), even though their acts were performed for the benefit of the corporation and without profit to the officer personally. Saltiel, supra, 170 N.J. at 304; Metuchen Sav. Bank, supra, 377 N.J. Super. at 161-62. As the Court in Saltiel explained:

"[a] corporate officer can be held personally liable for a tort committed by the corporation when he or she is sufficiently involved in the commission of the tort. A predicate to liability is a finding that the corporation owed a duty of care to the victim, the duty was delegated to the officer and the officer breached the duty of care by his own conduct."

[Saltiel, supra, 170 N.J. at 304.]

In such cases, personal liability for the torts of officers does not depend on the same grounds as "piercing the corporate veil," i.e. inadequate capitalization, use of the corporate form for fraudulent purposes, or failure to comply with the formalities of corporate organization. N.J. Dep't of Envtl. Prot. v. Gloucester Envtl. Mgmt. Servs., Inc., 800 F. Supp. 1210, 1219-20 (D.N.J. 1992).

On remand, if the judge finds that Siderman participated in a fraud, damages are in order. The judge assessed damages of $248,000, the amount derived from the sale of the house from the LLC to Six Ruffiani. Siderman contends that any damage award should have been the benefit of the bargain, that is, the gross proceeds less the taxes, interest and costs paid by the LLC to obtain the judgment.

With the exception of one case, Batura v. McBride, 75 N.J.L. 480, 482 (E. & A. 1907), the earlier New Jersey decisions consistently applied "out of pocket" damages in cases involving fraud. Curtiss-Warner Corp. v Thirkettle, 101 N.J. Eq. 279 (E. & A. 1927) (misrepresentation as to existence of a street contiguous to lot sold to plaintiff); Hodgson v Applegate, 55 N.J. Super. 1 (App. Div.) (misrepresentation that service station would be available for rental, inducing plaintiff to execute lease), aff'd, 31 N.J. 29 (1959); Kienle v MacFulton, Inc., 12 N.J. Misc. 697 (Sup. Ct. 1934) (misrepresentation of year of manufacture of automobile sold to plaintiff).

More recently, the Supreme Court has held that "benefit-of-the-bargain" damages may be applied in fraud cases. See Lipsit v. Leonard, 64 N.J. 276, 285 n.4 (1974) (stating New Jersey generally follows the benefit-of-the-bargain rule); see also Zeliff v. Sabatino, 15 N.J. 70, 74 (1954) (stating that New Jersey is not "so inexorably wedded" to the out-of-pocket rule that the benefit-of-the-bargain rule cannot be applied where justice requires); Correa v. Maggiore, 196 N.J. Super. 273, 277, 284 (1984) (holding the diminution in value caused by defendant's deceit better reflected plaintiff's actual loss and satisfied the reasonable expectations of the parties); Gardner v. Rosecliff Realty Co., 41 N.J. Super. 1, 10-11 (App. Div. 1956) (stating benefit-of-the-bargain damages cannot be awarded unless the amount of that benefit can be established by evidence with sufficient certainty). In any situation in which damages are incurred due to fraud, the court must be flexible to identify a measure of damages that responds to the harm caused by the fraudulent conduct. Zeliff, supra, 15 N.J. at 75.

Here, the judge tried to restore Breglia to the status quo ante the foreclosure to the extent that was possible given her inability to restore Breglia to his house. The amount derived from the sale of the premises is a ready measure of the value of the house. This sum, however, disregards the taxes and accrued interest due on the premises. Notably, in Crane, supra, 15 N.J. at 345, the property owners were allowed to redeem the premises by paying the full amount of the judgment and costs, and interest on the deposit made by the purchasers at the sheriff's sale; and in Bergen-Eastern, supra, 178 N.J. Super. at 44, the judgment was vacated conditioned on the payment by the property owner of the outstanding amount. Accord, Varsolona v. Breen Capital Servs. Corp., 180 N.J. 605, 619 (2004) (holding a property owner may redeem his or her property by paying a tax sale certificate, purchaser's expenses, including the subsequent taxes on the property, with interest); Barry L. Kahn Defined Benefit Pension Plan v. Twp. of Moorestown, 243 N.J. Super. 328, 334 (Ch. Div. 1990); N.J.S.A. 54:5-58. Any damage award based on the proceeds realized from the sale must reflect the taxes, interest and costs incurred by the LLC to obtain the judgment.

Reversed and remanded for further proceedings consistent with this opinion.

 

A Notice of Cross Appeal was filed by respondent on February 3, 2004, but was withdrawn and dismissed on May 5, 2004.

On July 26, 2004, Mr. Friedman filed a brief on behalf of both appellants; on April 8, 2005, Mr. Siderman filed the application to re-open the case pro se and amended the brief to a pro se submission.

A notice of lis pendens was also filed on behalf of Breglia on October 30, 2003.

(continued)

(continued)

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A-2772-03T2

December 9, 2005