HYUN KIM v. JUNG BROTHERS, LLC

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APPROVAL OF THE APPELLATE DIVISION
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SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-6024-17T1

HYUN KIM,

Plaintiff-Respondent/
Cross-Appellant,

JUNG BROTHERS, LLC,

Defendant-Appellant/
Cross-Respondent.
_________________________

HYUN KIM,

Plaintiff-Respondent/
Cross-Appellant,

KWON HO JUNG,

Defendant-Appellant/
Cross-Respondent.
_________________________

Submitted November 7, 2019 – Decided March 12, 2020

Before Judges Nugent, Suter and DeAlmeida.
On appeal from the Superior Court of New Jersey,
Chancery Division, Burlington County, Docket No. F-
6003-16 and L-1461-17.

Sim & Record, LLP, attorneys for appellant/cross-
respondents Jung Brothers, LLC, and Kwon Ho Jung
(Sang Joon Sim, on the briefs).

Pashman Stein Walder Hayden, PC, attorneys for
respondent/cross-appellant Hyun Kim (Janie Byalik,
Sean Mack, Jae Youn John Kim, and Zachary Aaron
Levy, on the briefs).

PER CURIAM

The actions underlying this appeal involve a secured $435,000 promissory

note with a fee-shifting collection clause. Defendant Kwon Ho Jung

("defendant"), the note's maker, defaulted. Plaintiff Hyun Kim, the note's payee,

filed a Law Division action to recover the balance due (the "note action") and a

Chancery Division action to foreclose on the mortgage that secured the note (the

"foreclosure action"). Jung Brothers, LLC (the "LLC") owned the mortgaged

property. Defendant was the LLC's managing member. The note and

foreclosure actions were consolidated. Following a bench trial, plaintiff

obtained judgments on both actions, but the trial court limited his attorney's fees

to those recoverable under Rule 4:42-9(a)(4), which allows but limits attorney's

fees in an action for the foreclosure of a mortgage.

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Defendant and the LLC appealed from the judgments but have since

stipulated to the dismissal of the appeal. Accordingly, their appeal is dismissed.

Plaintiff cross-appealed from the trial court's order awarding him limited

attorney's fees and no costs. He contends the trial court misapplied the rule

allowing fees in foreclosure actions. We agree and thus remand for further

consideration of that issue.

The note at issue included this fee-shifting collection clause:

The Undersigned agrees to pay all costs of enforcement
of this Note and the Loan Documents, including
reasonable attorney's fees and court costs, in the event
the Undersigned defaults in its obligations hereunder or
under the Mortgage, whether suit be brought against the
Undersigned or not.

When defendant defaulted, plaintiff filed the note action in Bergen

County. Within the next two weeks, he filed the foreclosure action in Burlington

County. Nearly a year later, defendant, the LLC, and a party in a third somewhat

related action filed a motion to consolidate, which the trial court granted over

plaintiff's objection. The third action was later severed. The note and

foreclosure actions were tried before a judge sitting without a jury in Burlington

County, and judgments were entered for plaintiff.

Plaintiff submitted a post-judgment application for $420,275 for

attorney's fees and $15,764.39 for costs, for a total of $436,039.39. His attorney

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submitted a certification attesting to the qualifications and billing rates of the

attorneys and paralegal who worked on the case and the time spent by each. The

court requested and received supplemental submissions from the parties

concerning plaintiff's fee application on the note action. In his supplemental

submission, plaintiff included his attorney's certification, which explained why

the attorney filed the note action. The attorney attached documents downloaded

from the internet confirming the property had previously sold for a fraction of

the amount due under the note.

In a written decision, the court awarded plaintiff fees under Rule 4:42-

9(a)(4) for the foreclosure action but denied plaintiff additional fees for the note

action. In all, the court awarded plaintiff $5,983.80. The court awarded plaintiff

no costs. The court interpreted case law to preclude the award of additional fees

to plaintiff on the note action in view of his proceeding with and prevailing on

the foreclosure action. The court also determined plaintiff provided no

competent proofs his foreclosure judgment would not satisfy the balance due on

the note.

On appeal, plaintiff argues the trial court erred in interpreting relevant

caselaw. Plaintiff contends counsel fees can be recovered under a note's fee -

shifting provision when a foreclosure action on a mortgage that secures the note

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will not satisfy the amount due on the note. Plaintiff argues the proofs contained

in his attorney's certification on the fee application established that the

anticipated sale of the foreclosed property would not satisfy the amount due on

the note.

Defendant and the LLC contend the trial court correctly interpreted

applicable caselaw. They argue, "[t]he work expended by [plaintiff's] attorneys

on the foreclosure action would have been the same. As such, the trial court

properly determined that [plaintiff's] application for legal fees should be limited

by [Rule] 4:42-9(a)(4)."

Preliminarily, we note the trial court apparently overlooked plaintiff's

costs. Rule 4:42-8(a) states that "[u]nless otherwise provided by law, these rules

or court order, costs shall be allowed as of course to the prevailing party." This

rule is unaffected by Rule 4:42-9(a)(4) concerning fees in foreclosure actions.

Although we are unable to discern from the record whether plaintiff raised the

issue before the trial court, because the matter is being remanded plaintiff may

present his claims for costs allowed by Rule 4:42-8.

We turn our attention to Rule 4:42-9(a)(4). Because plaintiff is

challenging the trial court's interpretation of the law, our review is de novo.

Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995).

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Rule 4:42-9(a)(4) provides:

In an action for the foreclosure of a mortgage, the
allowance shall be calculated as follows: on all sums
adjudged to be paid the plaintiff amounting to $5,000
or less, at the rate of 3.5%, provided, however, that in
any action a minimum fee of $75 shall be allowed; upon
the excess over $5,000 and up to $10,000 at the rate of
1.5%; and upon the excess over $10,000 at the rate of
1%, provided that the allowance shall not exceed
$7,500. If, however, application of the formula
prescribed by this rule results in a sum in excess of
$7,500, the court may award an additional fee not
greater than the amount of such excess on application
supported by affidavit of services. In no case shall the
fee allowance exceed the limitations of this rule.

The threshold issue we must decide is whether the rule applies to an action

on a note. We do not write on a clean slate. In Bergen Builders, Inc. v. Horizon

Developers, Inc., 44 N.J. 435 (1965), the Court addressed the issue under R.R.

4:55-7(c), which provided:

No fee for legal services shall be allowed in the
taxed costs or otherwise, except:
....
(c) In an action for the foreclosure of a
mortgage. The allowance shall be calculated as
follows: on all sums adjudged to be paid the plaintiff in
such an action, amounting to $ 5,000 or less, at the rate
of 2%; upon the excess over $ 5,000 and up to $ 10,000
at the rate of 1%; and upon the excess over $ 10,000 at
the rate of one[-]half of 1%.

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The Court noted the rule "is by its terms confined to foreclosures and is not

applicable in an action on a promissory note." 44 N.J. at 438. R.R. 4:55-7 is

the source rule for Rule 4:42-9. See Pressler & Verniero, Current N.J. Court

Rules, note on R. 4:42-9 (2020). Like its predecessor, Rule 4:42-9(a)(4) by its

terms is confined to foreclosure actions. Thus, like its predecessor, the rule

"does not preclude the enforcement of a contractual provision in a promissory

note for the payment of a reasonable attorney's fee for services actually rendered

in collection[.]" Alcoa Edgewater No. 1 Fed. Credit Union v. Carroll, 44 N.J.
442, 448 (1965).

Nor does the consolidation of an action on a note and a foreclosure action

somehow render the rule applicable to the action on the note. "[C]onsolidation

is permitted as a matter of convenience and economy in administration, but does

not merge the suits into a single cause, or change the rights of the parties[.]"

Johnson v. Manhattan Ry. Co., 289 U.S. 479, 496-97 (1933).

This does not end our inquiry. In Bergen Builders, the plaintiff filed an

action on a note with a provision for collection fees but did not file a foreclosure

action. 44 N.J. at 436-37, 438. Addressing the plaintiff's fee application, the

Court said:

It is true that in our own State we have a specific rule
provision dealing with foreclosures (R.R. 4:55-7(c)),

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and if this were a foreclosure proceeding the judgment
could not have included any provision for legal fees
beyond those explicitly set forth in the cited rule. See
Bank of Commerce v. Markakos, 22 N.J. 428 (1956).
But that rule is by its terms confined to foreclosures and
is not applicable in an action on a promissory note. See
[Alcoa, 44 N.J. at 442]. Nevertheless[,] it would
appear just that it receive consideration on the issue of
reasonableness where the plaintiff's note is secured by
a mortgage and foreclosure could readily have been
pursued. Assuming, as has been represented by the
defendants, that the mortgage security was at all times
wholly adequate and that the plaintiff could have been
fully satisfied in foreclosure, inquiry should be made
by the trial court as to why that course was not chosen
and whether it would now be equitable to burden the
defendants with legal fees beyond those which would
have been included in a foreclosure proceeding
judgment.

[Id. at 438.]

The Court did not expressly preclude the award of fees under the note's

fee-shifting provision. Rather, the Court explained that the trial court should

inquire why plaintiff chose not to proceed with the foreclosure action and

determine "whether it would now be equitable to burden the defendants with

legal fees beyond those which would have been included in a foreclosure

proceeding judgment." Ibid.

Similar but not identical issues have been addressed by this court. In

Coastal State Bank v. Colonial Wood Products, Inc., 172 N.J. Super. 320 (App.

A-6024-17T1
8 Div. 1980), the court held that a payee under a note secured by a mortgage, who

proceeded with a foreclosure action that fully satisfied the note plus fees

allowable under Rule 4:42-9(a)(4), could not seek additional fees under the fee-

shifting provision in the note. Id. at 324. Plaintiff had filed a foreclosure action

but not an action on the note. Id. at 323. The court explained that "[s]ince

plaintiff sought fees only in accordance with [Rule 4:42-9(a)(4)] when the

judgment was entered, it was improper procedurally in the same proceeding after

the judgment was entered and payment tendered to change the basis of an award

of attorney's fees to the provisions for fees in the notes." Id. at 324.

In Regency Savings Bank, F.S.B. v. Morristown Mews, L.P., 363 N.J.

Super. 363, 365 (App. Div. 2003), the court addressed a lender's application for

fees under fee provisions of two notes secured by mortgages. The final

foreclosure judgments satisfied the principal and interest due under the notes

and the fees awarded under Rule 4:42-9(a)(4). The lender sought increased fees

"under the fee provisions in the notes and, before entry of final judgments in the

foreclosure actions, filed a deficiency action seeking full recompense of its

collection fees." Id. at 366. The court framed the issue before it:

The basic query underlying the parties' dispute is
whether a lender, secured by a mortgage on a note, who
procures foreclosure and receives payment of principal
and interest and counsel fees, albeit limited to fees

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authorized under R[ule] 4:42-9(a)(4), may augment
those fees by way of a deficiency action on a fee-
shifting provision in the note.

[Ibid.]

The court determined the

lender's fee-shifting provisions on the secured notes
must be viewed in the context of R[ule] 4:42-9(a)(4).
This is particularly so because the deficiency action is
limited solely to the fees which could not be awarded
in the foreclosure actions. To us, this is the proverbial
entrance through the back door when entrance through
the front door is impermissible. Under these
circumstances, we find no error in the judge's fee
determination.

[Id. at 370.]

The court commented on First Morris Bank & Trust v. Roland Offset

Service, Inc., 357 N.J. Super. 68 (App. Div. 2003), noting the case "might seem

to support the lender's quest for contractual fees." Regency Sav. Bank, 363 N.J.

Super. at 370. Although the First Morris Bank case appeared to involve both a

note and a foreclosure action, the Regency Savings Bank court could not "tell

from the decision whether foreclosure fee-shifting had occurred and certainly it

does not appear the deficiency action on the note was brought primarily to obtain

greater counsel fees. As far as we can tell, then, the panel in First Morris Bank

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was not confronted with the precise issue we are confronted with here."

Regency Sav. Bank, 363 N.J. Super. at 370.

We distill from the foregoing cases the following principles concerning

secured notes with fee-shifting collection clauses. First, as a general rule, a

plaintiff is precluded from circumventing the fee structure set forth in Rule 4:42-

9(a)(4). Ibid. For that reason, if a mortgage will satisfy the principal and interest

due on a note plus the fees allowable under Rule 4:42-9(a)(4), a plaintiff may

not seek additional fees under the note's fee-shifting collection provision. Ibid.

Plaintiffs in such circumstances are barred from seeking additional fees

regardless of whether they file a foreclosure action and no action on the note,

both a foreclosure action and an action on the note, or only an action on the note.

Bergen Builders, 44 N.J. at 438; Regency Sav. Bank, 363 N.J. Super. at 366,

370; Coastal State Bank, 172 N.J. Super. at 321, 324.

Next, if the plaintiff's attorney has filed an action on the note, or as in this

case an action on the note and a foreclosure action, and seeks fees under the

note's fee-shifting collection provision, the court must inquire as to why the

attorney chose not to simply pursue a foreclosure action. Bergen Builders, 44 N.J. at 438. If the court determines the attorney chose that course of action to

circumvent the fee structure of Rule 4:42-9(a)(4), or that a foreclosure action

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will satisfy the principal and interest due on the note plus fees allowable under

this rule, then fees should not be awarded in excess of the fees allowable under

the rule. See Regency Sav. Bank, 363 N.J. Super. at 370. If the court

determines the attorney chose that course of action because of a bona fide belief

foreclosure would not satisfy the principal and interest due under the note, the

court must determine if and to what extent it would be equitable to award

reasonable fees in excess of those allowable in a foreclosure action. See Bergen

Builders, 44 N.J. at 438.

There may be occasions when parties have a bona fide dispute about

whether a foreclosure action will satisfy the principal and interest on a note plus

the fees allowable under Rule 4:42-9(a)(4). In such cases, as in any case where

parties have a bona fide dispute about a material fact, a hearing may be

necessary. We are confident our trial courts will exercise their discretion to

narrow and resolve such disputes expeditiously.

In the case before us, the trial court found the facts presented to it to be

indistinguishable from Regency Savings Bank. There is, however, a significant

factual distinction. There, the foreclosure action satisfied the principal and

interest due on the note and the fees allowable under Rule 4:42-9(a)(4). 363 N.J. Super. at 371-72. Here, the undisputed record establishes the foreclosure

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judgment will not satisfy the amount due on the note. The note action was thus

necessary. The trial court should have determined what fee, if any, in addition

to that allowable under Rule 4:42-9(a)(4), would have been equitable and

reasonable.

We note the trial court found incompetent plaintiff's "proofs" the

mortgaged property was inadequate to satisfy the amount due on the note. We

note Rule 1:6-6's requirement that motions based on facts not appearing of

record or judicially noticeable be presented by affidavits based on personal

knowledge. Here, however, plaintiff offered the records of previous sales of the

mortgaged property to explain why he filed both a note and foreclosure action.

Moreover, it does not appear from the present record that there was a bona fide

dispute about the inadequacy of the mortgaged property to satisfy the amount

due on the note. See N.J.R.E. 101(a)(4) ("If there is no bona fide dispute

between the parties as to a relevant fact, . . . [i]n civil proceedings the judge may

. . . permit that fact to be proved by any relevant evidence, and exclusionary

rules shall not apply, except Rule 403 or a valid claim of privilege.")

We also note defendant and the LLC assert without factual support that

plaintiff would have expended the same time and effort on the foreclosure and

the note actions. That assertion seems untenable. Plaintiff had to draft the

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complaint in the note action and pursue certain discovery tailored to that action.

In any event, the trial court can factor overlapping work into its fee decision.

We also note the theme in plaintiff's brief that defendant and the LLC

obstructed discovery and pursued frivolous defenses, thereby unnecessarily

prolonging and complicating the litigation. We cannot glean from the record

whether plaintiff pursued discovery sanctions for the alleged misconduct or

sought frivolous pleading sanctions under either Rule 1:4-8 or N.J.S.A. 2A:15-

59. Such sanctions are neither barred nor restricted by Rule 4:42-9(a)(4). See

Somerset Tr. Co. v. Sternberg, 238 N.J. Super. 279, 286-87 (Ch. Div. 1989).

Nevertheless, the conduct of the parties is a relevant factor for the court to

consider when determining what fee, if any, is equitable. Rendine v. Pantzer,

141 N.J. 292, 316-17 (1995).

On remand, the trial court shall determine whether there is a bona fide

dispute about whether the mortgaged property will satisfy the amount due on the

note plus allowable fees and costs. If not, the court shall determine what

additional fees under the note's fee-shifting collection provision, if any, are

equitable and reasonable under the circumstances.

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The appeal is dismissed. The order from which plaintiff cross-appeals is

reversed as to the issues of fees and costs and the matter is remanded for further

proceedings consistent with this opinion. We do not retain jurisdiction.

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