JERSEY MARINE INDUSTRIES, INC. v. CANYON CLASSICS OFFSHORE YACHTS, INC., JAMES STOKES, and JEFF JASTRZEMBSKI

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3004-03T33004-03T3

JERSEY MARINE INDUSTRIES, INC.,

Plaintiff,

v.

CANYON CLASSICS OFFSHORE YACHTS, INC.,

JAMES STOKES, and JEFF JASTRZEMBSKI,

Defendants,

CANYON CLASSICS OFFSHORE YACHTS, INC.,

Third-Party Plaintiff,

v.

JERSEY MARINE INDUSTRIES, INC.,

BRUCE PANSIUS, and DONALD DOHERTY,

Third-Party Defendants,

v.

FRANK MACCHIO, d/b/a CapiTel Leasing,

Fourth-Party Plaintiff-

Appellant/Cross-Respondent,

v.

CANYON CLASSICS OFFSHORE YACHTS, INC.,

JAMES STOKES, JEFF JASTRZEMBSKI, and

SCOTT JASTRZEMBSKI,

Fourth-Party Defendants-

Respondents/Cross-Appellants,

GILMAN YACHT SALES, INC.,

ELIZABETH CHILDS, ATLANTIC BOAT

DOCUMENTATION, BANK OF AMERICA, NA,

RONALD TEGGE, and TRIDENT FUNDING CORP.,

Fourth-Party Defendants-

Respondents.

_____________________________________________________

 

Argued November 15, 2005 - Decided

Before Judges Coburn, Lisa and S.L. Reisner.

On appeal from the Superior Court of New Jersey,

Law Division, Camden County, L-3324-01 and

L-3844-01.

Sander D. Friedman argued the cause for

appellant/cross-respondent Frank Macchio

(Mr. Friedman, on the brief).

Stephen M. Calder argued the cause for

respondents Gilman Yacht Sales, Inc. and

Ronald Tegge (Palmer Biezup & Henderson, attorneys; Mr. Calder, of counsel and on the brief).

Paul J. Giordano argued the cause for

respondent Bank of America (Mr. Giordano, on the brief).

Justin T. Loughry argued the cause for

for respondents/cross-appellants Jeff Jastrzembski, Scott Jastrzembski, and Canyon

Classics Offshore Yachts, Inc. (Loughry and

Lindsay, attorneys; Mr. Loughry, of counsel

and on the brief).

PER CURIAM

The dispute between the plaintiff and the defendants and the third-party defendants was resolved prior to trial. Presented for our consideration are the disputes between the fourth-party plaintiff, Frank Macchio, and the fourth-party defendants, which were tried to a jury. The causes of action alleged by Macchio were failure to pay a $60,000 promissory note, conversion, fraud, deceptive business practices, and unjust enrichment. At the end of Macchio's case, the judge granted motions for involuntary dismissal as to all fourth-party defendants except Canyon Classics Offshore Yachts, Inc. ("Canyon"), James Stokes, and Jeff and Scott Jastrzembski. Their primary defense was that the note was usurious. The judge denied Macchio's request for submission to the jury of his demands for interest on the note and punitive damages on the tort claims. Based on the jury's verdicts, which included rejection of the usury defense on the ground that Macchio did not intend to accept usurious terms, judgment was entered as follows: against Canyon, Stokes and the Jastrzembskis on the note; against Stokes for conversion; against Canyon and Stokes for fraud; against Canyon and Stokes for deceptive business practices; and against Canyon, Stokes and the Jastrzembskis for unjust enrichment. Counsel fees of over $22,000 were awarded as against Canyon, Stokes and the Jastrzembskis, and the damages were set at $60,000 with interest at eight percent from April 19, 2002, which is the date on which Macchio filed an offer of judgment for $60,000. Certain costs were allowed to Bank of America. Macchio appeals, and Canyon and the Jastrzembskis cross-appeal. Stokes' notice of appeal was dismissed.

I

Canyon built yachts in New Jersey at premises it rented from Jersey Marine Industries, Inc. ("JMI"). Stokes was the president, and the Jastrzembskis were officers of Canyon. Macchio lived in Connecticut, where he was an electrician and operated CapiTel Leasing, which he described as a small leasing company that lent money to his customers. He also owned about twenty percent of the shares of JMI.

The principals of Canyon met with Macchio and asked him if he would lend money to their company for short periods of time to enable them to build boats and improve their credit rating. He agreed, and on four occasions made short-term loans to Canyon, each for $60,000, with interest at $3,000. The loans were promptly repaid. The fifth such transaction gave rise to this litigation.

Macchio testified that the Canyon principals approached him with a request for a $60,000 loan to provide initial financing for Canyon's construction of a yacht. They said they would repay the loan in a little over one month with $3,000 in interest. Macchio decided on the language to be incorporated in the note and chose to make the note subject to Connecticut law.

James Stokes and the Jastrzembskis personally signed the note on April 18, 2001. The note included these provisions:

(1) the proceeds were to be used to finance Topaz hull

number 14; (2) the principal was to be distributed by payments of $30,000 on April 19, 2001, and $15,000 on April 26, and May 3, 2001; (3) the proceeds were to be used to pay invoices of JMI; (4) the principal and $3,000 in interest was to be paid to CaptiTel at its Connecticut address by May 28, 2001; (5) after May 28, "a penalty of $100 per day will be due . . . ;" (6) "Topaz 32 hull number 14 . . . shall serve as security . . ., [and] the Manufacturer's Statement of Origin . . . shall be forwarded to CaptiTel Leasing immediately and [will be] held as security until repayment . . . ;" and (7) "[t]his note . . . shall be construed, governed and enforced in accordance with the laws of the State of Connecticut." As with the previous loans, Stokes gave to Macchio Canyon's "Manufacturer's Certificate of Origin," certifying that the Topaz hull it owned "has been transferred" to CapiTel Leasing in Connecticut. No such transfer took place, and the hull remained in New Jersey. There was no evidence that any defendant represented to Macchio that the delivery of a Manufacturer's Certificate of Origin transferred the title or is a perfected security interest.

The construction of this yacht came about as a result of a $250, 000 November 2000 contract between Ronald Tegge and Gilman Yacht Sales, Inc. ("Gilman"). Gilman, in turn, contracted with Canyon for the yacht's construction and provided an initial deposit of $50,000. Toward the end of June 2001, a dispute arose between Canyon and JMI, and Canyon left the premises, taking the unfinished hull elsewhere in New Jersey. The closing occurred on June 20, 2001, with some financing provided to Tegge through or by Trident Funding Corporation and Bank of America. Stokes sent the necessary closing documents for Canyon, including a second Manufacturer's Certificate of Origin, and neither Tegge, Trident, nor Bank of America knew anything about Macchio's involvement with Canyon.

II

The trial judge correctly dismissed the claims against the yacht's purchaser and the finance companies. Macchio argues that he proved that they had converted his property. But he never owned the yacht. A Manufacturer's Certificate of Origin is not a certificate of title. Heinrich v. Titus-Will Sales, 868 P.2d 169, 177-78 (Wash. App. Div. 1994); Transamerica Commercial Fin. Corp. v. Union Bank & Trust Co., 584 So. 2d 1299, 1303 (Ala. 1991); Jones v. One Fifty Foot Gulfstar Motor Sailing Yacht, 625 F.2d 44, 48-49 (5th Cir. 1980). Even assuming that Macchio obtained title to the boat, he still cannot sue these defendants for conversion because he permitted Canyon to retain possession of the yacht and it was sold in the ordinary course of Canyon's business. See N.J.S.A. 12A:2-403(2) (providing that "[a]ny entrusting of possession of goods to a merchant who deals in goods of that kind gives the merchant power to transfer all rights of the entruster to a buyer in ordinary course of business"); see also Touch of Class Leasing v. Mercedes-Benz Credit of Canada, Inc., 248 N.J. Super. 426, 437-38 (App. Div), certif. denied, 126 N.J. 390 (1991) (holding that a sale to good-faith purchaser for value cures defects in seller's voidable title). At oral argument, Bank of America volunteered to abandon its defense of the costs awarded by the trial judge if we determined that Macchio had no cause of action against it. Consequently, we reverse the order allowing costs to Bank of America.

The trial judge erred in denying the motions for judgment urged by Canyon and the Jastrzembskis. The claims against Canyon were for the amount due on the note and for the torts of fraud, deceptive business practices, conversion, and unjust enrichment. The claims against the Jastrzembskis were for the amount due on the note and for unjust enrichment. The primary error was the failure to properly apply the law of Connecticut, which Macchio conceded governed this case. Under that state's law, the note is usurious as a matter of law, and Macchio is prohibited from recovering anything on it or on any cause of action arising from its creation.

Before discussing Connecticut law, we note that Macchio has never suggested that Canyon or its principals committed fraud in the inducement of this loan, or engaged in any deceptive business practice at the onset of the loan. Nor did he prove that he relied on the subsequent conduct, which he describes as fraudulent at least on Canyon's behalf, surrounding the transfer of the yacht to Tegge. Since there was no evidence of misrepresentation to Macchio or of reliance, the fraud and deception claims fail. Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997). Since, as noted above, Macchio never owned the boat, but held at best, an unperfected security interest, there was no basis for his action for conversion against these defendants. Mueller v. Technical Devices Corp., 8 N.J. 201, 207 (1951). That leaves the claims on the note and the claims for unjust enrichment, to which we now turn.

Both claims are governed by the law of Connecticut. The relevant provision of that state's usury statute allowed for a maximum annual interest rate, when this loan was made, of 19.4 percent. Conn. Gen. Stat. 37-9. Another provision states that the lender may neither "charge, demand, accept or make any agreement to receive" more than the allowed interest. Conn. Gen. Stat. 37-4. And section 37-8 states that "[n]o action shall be brought to recover principal or interest, or any part thereof, on any loan prohibited . . ., or upon any cause arising from the negotiation of such loan." Conn. Gen. Stat. 37-8. On its face, this note provides for the repayment of $63,000 on a thirty-three day loan for a principal amount of $60,000, which results in an annual interest rate exceeding forty-five percent. Macchio conceded that the additional $3,000 represented interest on the loan, but argued that the note did not violate Connecticut's usury statutes because he did not have the requisite intent to commit usury. Although the jury accepted that contention, we cannot do so under Connecticut law because the only intent required is the intent to accept "payments which exceed the amount of interest allowed by statute." Wesley v. DeFonce Contracting Corp., 216 A.2d 811, 814 (Conn. 1966) (citing Golden v. Lyons, 193 A.2d 487, 490 (Conn. 1963); Atlas Realty Corp. v. House, 192 A. 564, 567 (Conn. 1937)). When that intent is present, the lender may receive back neither the interest nor principal. Ibid.

"The fact that the note exceeds the amount loaned is evidential of this intent, but not conclusive, since it may be open to explanation satisfying the trier that its acceptance was not with the unlawful intent . . . ." Contino v. Turello, 126 A. 725, 726 (Conn. 1924). But only in the rare instance will such an explanation be accepted. Ibid. Here, Macchio offered no such explanation, let alone one sufficient to overcome the evidence of intent indicated by the face of the note.

Macchio argues that his position is supported by Wesley, supra. In that case, the plaintiff-lender was a seventy-eight-year-old woman. Sophisticated corporate borrowers approached her, set the terms of and supplied the note, which was not usurious on its face, and persuaded her not to consult her attorney before entering the transaction. In those unusual and particularly troublesome circumstances, the court affirmed the trial court's determination that there was no intent to violate the usury law, emphasizing that "this was not the ordinary commercial transaction." Wesley, supra, 216 A.2d at 814. By contrast, in the present case, although the borrowers approached Macchio and suggested the amount of interest, it was Macchio who had the note drawn according to his terms, the note was usurious on its face under Connecticut law, and this was an ordinary commercial transaction.

Furthermore, Macchio brought suit to recover the entire amount owed on the note rather than merely the amount lent. Such demand constitutes that which section 37-4 seeks to deter. Indeed, Connecticut courts have expressly indicated that a lender may recover the principal of an otherwise usurious note if he brings suit to recover the amount actually loaned rather than the total amount of the note. In Wesley, supra, 216 A.2d at 813, the court found that because the plaintiff sought only to recover the amount loaned with legal interest rather than the amount stated on the face of the note, the plaintiff's intent was not as readily apparent as those in other cases in which "suit was brought on the note itself." Similarly, in Golden, supra, 193 A.2d at 489, the court explained that "[t]his is not a case where the plaintiff attempted to recover the amount actually loaned. Had the plaintiff followed that course, his conduct would have been consistent with his claim that the acceptance of the note was not with any unlawful intent to violate the statute." (citation omitted). See also Contino, supra, 126 A. at 726 (stating that "[h]ad the action been brought to recover the amount actually loaned, recovery might have been had"). But Macchio chose to assert a claim for the entire amount of $63,000 and thus cannot contend that he lacked the intent to receive interest on the loan in an amount greater than that allowed by statute.

We note that the terms of the note were not usurious under New Jersey law since the loan was being made here to a corporation. N.J.S.A. 31:1-6. Under that provision, the borrowers would have been prohibited from asserting usury as a defense, and we could have required them to repay the loan as agreed to. But Macchio chose Connecticut law to govern the note, and the borrowers would have no reason to know that it was usurious under that state's law. There exists no indication that the borrowers here, unlike those in Wesley, supra, attempted to induce Macchio into a usurious transaction in order to avoid repayment of the loan.

Thus, had Macchio offered some alternate explanation for the $3,000, or had he brought suit to recover the amount actually loaned, we may have been able to allow recovery. Alternatively, had New Jersey law governed the transaction, the borrowers would have been prohibited from asserting the usury defense, and we could have permitted recovery. But none of those situations reflect the instant case. Since this is an ordinary commercial transaction and since there was no fraud used to induce the loan, see Conn. Nat'l Bank v. Voog, 659 A.2d 172 (Conn. 1995), we are satisfied that Connecticut would not permit Macchio to recover anything on the note as a matter of law, particularly since the note was payable in Connecticut. Santoro v. Osman, 174 A.2d 800, 801 (Conn. 1961). And to allow recovery under the doctrine of unjust enrichment, or for that matter under any of the other tort claims, would be inconsistent with the cited cases and with the prohibition in section 37-8 against allowing recovery "upon any cause arising from the negotiation" of a usurious loan.

The last question is whether Macchio should be allowed to pursue his punitive damage claims against Stokes for the fraudulent conduct alleged. Had Stokes appealed, he would have prevailed on those claims since there was no evidence of misrepresentations made by him to Macchio and on which Macchio relied. But Stokes did not perfect his appeal, and consequently we are without jurisdiction to provide him relief. Punitive damages may be allowed "only if compensatory damages have been awarded . . . . An award of nominal damages cannot support an award of punitive damages." N.J.S.A. 2A:15-5.13(c). We construe this statute as meaning that the plaintiff cannot have punitive damages unless legally entitled to the compensatory damages as a matter of right and not because of a technicality, such as Stokes' failure to perfect his appeal. Although we cannot interfere with Macchio's compensatory award against Stokes, we are not obliged to add to that injustice by remanding for a trial on punitive damages.

Affirmed in part; reversed in part; and remanded for entry of a judgment consistent with this opinion.

 

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A-3004-03T3

December 14, 2005