Opinion
DOCKET NO. A-5074-12T3
06-22-2015
1180 RAYMOND URBAN RENEWAL, LLC and U.S. BANK NATIONAL ASSOCIATION, as Trustee for the Registered Holders of the Maiden Lane Commercial Mortgage-Backed Securities Trust 2008-1, Plaintiffs-Respondents, v. 1180 ASTRO URBAN RENEWAL INVESTORS LLC, a Delaware limited liability company f/k/a 1180 ASTRO INVESTORS LLC; LEFCOURT NEWARK LLC, a Delaware limited liability company; 1180 ASTRO LEASECO LLC, a Delaware limited liability company; COGSWELL REALTY GROUP, L.L.C., a New York limited liability company; THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation; FASTENAL COMPANY, a Minnesota corporation; DIRECT ENVIRONMENTAL CORP., a New York corporation; BURGESS STEEL, LLC, a New York limited liability company; REMCO MAINTENANCE LLC, a DELAWARE limited liability company; WOODWORKS CONSTRUCTION CO., INC., a New York corporation; DYNAMIC MECHANICAL CONTRACTORS, INC., a New York corporation; F&G MECHANICAL CORPORATION, a Delaware corporation; LONG ISLAND FIREPROOF DOOR, a New Jersey corporation; POINTERS, CLEANERS & CAULKERS WELFARE, PENSION, ANNUITY, EDUCATION & BENEFIT FUNDS, ON BEHALF OF ITS BARGAINING UNIT BRICKLAYERS AND ALLIIED CRAFTSMEN LOCAL 1, NEW YORK; BRICKLAYERS AND ALLIED CRAFTSMEN LOCAL 1, NEW YORK; LANDMARK FIRE PROTECTION, a New Jersey corporation; SRS, INC., a New York corporation; and THE BERN COMPANIES, INC., a New York corporation; RICCIO STEEL ERECTORS, INC., a New York corporation; DEERPATH CONSTRUCTION CORPORATION, a New York corporation; and THE STATE OF NEW JERSEY, the CITY OF NEWARK, and TORCHLIGHT DEBT OPPORTUNITY FUND III, LLC, Defendants, and BOVIS LEND LEASE LMB, INC., Defendant-Appellant.
Peckar & Abramson, P.C., attorneys for appellant (Patrick J. Greene, Jr. and Alexander X. Saunders, on the briefs). Greenberg Traurig, LLP, attorneys for respondents 1180 Raymond Urban Renewal LLC and U.S. Bank, National Association (Cory Mitchell Gray, Theodore J. McEvoy and Geoffrey W. Castello, of counsel and on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Espinosa, St. John and Rothstadt. On appeal from Superior Court of New Jersey, Chancery Division, Essex County, Docket No. F-10765-09. Peckar & Abramson, P.C., attorneys for appellant (Patrick J. Greene, Jr. and Alexander X. Saunders, on the briefs). Greenberg Traurig, LLP, attorneys for respondents 1180 Raymond Urban Renewal LLC and U.S. Bank, National Association (Cory Mitchell Gray, Theodore J. McEvoy and Geoffrey W. Castello, of counsel and on the brief). PER CURIAM
Defendant Bovis Lend Lease LMB, Inc. (Bovis) appeals from the determinations by the Chancery Division that it was not entitled to further funds from a completion reserve account, and the substitution of 1180 Raymond Urban Renewal, LLC (Urban Renewal), as plaintiff, in place of U.S. Bank National Association (U.S. Bank), as Trustee for the registered holders of the Maiden Lane Commercial Mortgage-Backed Securities Trust 2008-1. Defendant also contends that the court erred in dismissing its counterclaims without an evidentiary hearing. Upon our review, in light of the record and governing law, we affirm.
I.
We adduce the following facts and procedural history from the record. On appeal from summary judgment, we recite the facts in the light most favorable to plaintiff, the non-moving party, giving it the benefit of all reasonably-drawn inferences. Robinson v. Vivirito, 217 N.J. 199, 203 (2014).
This dispute involves real property located at 1180 Raymond Boulevard in Newark (the Property). Bovis, as construction manager, contracted with 1180 Astro Urban Renewal Investors, LLC (1180 Astro or the Borrower) to perform renovation work on the Property. Bovis also entered into various subcontracts for the performance of the work. Thereafter, problems arose between the parties. 1180 Astro disputed the scope and quality of the work and Bovis asserted that payments were due. Ultimately, Bovis ceased work. That dispute was the subject of an action in the Law Division.
It is unclear from the record before us the outcome of that action.
On May 17, 2007, Bear Stearns Commercial Mortgage, Inc. (BSCMI) fully advanced a loan (the Loan) to 1180 Astro, the proceeds of which were primarily utilized to repay a construction loan 1180 Astro had obtained from a previous lender and to fund completion of the work. The Loan was made pursuant to the terms of a Loan Agreement dated May 17, 2007, between 1180 Astro, 1180 Astro Leaseco, LLC, as sublessee, and BSCMI. The Loan was evidenced by a promissory note and secured by a mortgage on the Property. Bovis was not a party to any of the Loan documents. Pursuant to an allonge endorsement and an omnibus assignment, dated June 26, 2008, an assignment of mortgage, an assignment of leases, rents and profits, dated April 2, 2009, the Loan and loan documents were assigned to U.S. Bank, as Lender.
Pursuant to Section 7.6.1 of the Loan Agreement, a completion reserve fund was created and funds were deposited from the proceeds of the Loan into the completion reserve account. The completion reserve fund was created for the purpose of generating a reserve for the cost of all outstanding construction work at the Property. If the Borrower satisfied certain conditions precedent, as set forth in Section 7.6.2, then Lender would disperse to the Borrower completion reserve funds for the construction work. Section 7.7 granted to Lender a first-priority security interest in each of the reserve funds and any and all monies deposited in each reserve fund as additional security for payment of the debt. Additionally, in the event of default, Lender may, in addition to any and all other rights and remedies available to Lender, apply any sums then present in any or all of the reserve funds to the payment of the debt in any order, in its sole discretion. The reserve funds did not constitute trust funds and may be commingled with any other monies held by Lender.
Importantly, Section 10.16 of the Loan Agreement specifically provided that the Loan Agreement and the other loan documents
are solely for the benefit of lender/borrower and sub-lessee and nothing contained in the loan agreement or any of the loan documents shall be deemed to confer upon anyone other than lender, borrower and sub-lessee any right to insist upon or to enforce the performance or observance of anyThe Loan Agreement also provided that
of the obligations contained herein or therein.
no other Person shall under any circumstances be deemed to be a beneficiary of [the conditions to the obligations of Lender to make the Loan], any or all of which may be freely waived in whole or in part by Lender if, in Lender's sole discretion, Lender deems it advisable or desirable to do so.
On July 30, 2007, one of Bovis' sub-contractors filed a construction lien claim against the Property. The filing of this lien constituted an event of default under the Loan Agreement. Other sub-contractors subsequently filed liens against the Property. 1180 Astro acknowledged that it was in default in a Forbearance Agreement dated December 11, 2008. 1180 Astro explicitly admitted that the construction liens filed against the Property gave rise to an existing default allowing Lender to accelerate the note, and exercise its remedies.
On April 7, 2009, U.S. Bank filed this foreclosure action in the Chancery Division against 1180 Astro and its related entities. Bovis was named as a defendant because it had filed a construction lien against 1180 Astro with the Clerk of Essex County for the value of its work, services, materials, and equipment. Bovis filed its answer on May 27, 2009. Thereafter, the parties engaged in discovery, which included paper discovery and depositions. On September 2, 2009, U.S. Bank moved for summary judgment. Bovis opposed the motion on the basis it was premature and discovery was required on various issues. The court denied U.S. Bank's motion.
The other entities who filed liens, although parties to the litigation, are not parties to this appeal.
On July 2, 2010, U.S. Bank filed a second motion for summary judgment. Bovis cross-moved for partial summary judgment seeking an equitable lien on certain funds in the completion reserve fund created under the Loan Agreement. The court ruled 1180 Astro defaulted on the Loan and that the notice of default and the notice of acceleration issued by U.S. Bank were proper based on the default. On February 4, 2011, the court granted U.S. Bank's motion for summary judgment, but ordered the initial amount deposited in the completion reserve fund constituted
a constructive trust for the sole purpose of payment to persons listed on Schedule IV to the Loan Agreement for construction work described thereon and that to the extent that the Defendants can prove that such funds were not used for such purpose Plaintiff shall deposit such funds with the court and such funds shall be disposed of by further order of the Court consistent with the purpose of the constructive trust.
Bovis and U.S. Bank made their submissions regarding the issue of the constructive trust. The parties submitted briefs, affidavits, and documentation to Judge Harriet Faber Klein in connection with the "constructive trust" and the payments from the completion reserve account.
Thereafter, U.S. Bank assigned the Loan to Urban Renewal, which was substituted as the plaintiff in this action on June 8, 2012.
On November 7, 2012, the court issued its comprehensive written decision determining there was no misapplication or misuse of any of the funds, and there was no equitable basis for the imposition of a constructive trust. The motion judge reviewed in detail the work at the Property as set forth in Schedule IV to the Loan Agreement. The judge concluded, "[T]here is no reason to consider the payments from the fund as a wrongful diversion, nor has anyone been unjustly enriched." Judge Klein found that there was no prohibition against payment for "soft cost" items, especially in the context of post-default disbursements, when the lender was permitted to apply the remaining balance to its outstanding debt, "but chose to pay for some repairs and maintenance in an effort to create positive cash flow from this asset." The court entered final judgment of foreclosure on June 5, 2013. The Property was subsequently sold at Sheriff's sale to plaintiff Urban Renewal. This appeal ensued.
Bovis contends the court erred by determining that it was not entitled to additional funds from the completion reserve, granting plaintiff relief without an evidentiary hearing, and concluding the substitution of Urban Renewal, as plaintiff for U.S. Bank, was proper.
II.
A court should grant summary judgment when the record reveals "no genuine issue as to any material fact" and "the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). We review a ruling on summary judgment de novo. Davis v. Brickman Landscaping, Ltd., 219 N.J. 395, 405 (2014). In deciding whether summary judgment was properly granted, we apply "the same standard governing the trial court." Gormley v. Wood-El, 218 N.J. 72, 86 (2014) (citation and internal quotation marks omitted). We consider "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). We also give the non-moving party "the benefit of the most favorable evidence and most favorable inferences drawn from that evidence." Gormley, supra, 218 N.J. at 86. Applying these standards, we agree that summary judgment was properly granted.
Bovis asserts it is a third-party beneficiary to the Loan Agreement. "The standard applied by courts in determining third-party beneficiary status is whether the contracting parties intended that a third party should receive a benefit which might be enforced in the courts. . . ." Rieder Cmtys., Inc. v. N. Brunswick, 227 N.J. Super. 214, 222 (App. Div.) (internal citation and quotation omitted), certif. denied, 113 N.J. 638 (1988). Bovis urges us to rely on Broadway Maint. Corp. v. Rutgers, 180 N.J. Super. 350 (App. Div. 1981), aff'd, 90 N.J. 253 (1982), to justify its claim as a third-party beneficiary. In Broadway, we relied heavily on the contract language that explicitly mentioned third parties as "cooperat[ing] and collaborat[ing]" with a named party to the contract at issue so as to deliver the intended building conforming to the contract. Id. at 357. We found that this clear language shows that the third parties directly benefited from the performance of the contract and the language shows intent to establish this relationship. Id. at 357-58.
Here, the Loan Agreement specifically provides that there are no third—party beneficiaries, and no one other than the parties to the agreement have standing to enforce any term of the Loan Agreement. No facts suggest, much less prove, the parties to the Loan Agreement intended to make Bovis a third-party beneficiary. Bovis has proffered nothing which establishes it as a third-party beneficiary to whom the parties to the Loan Agreement owe a particular duty. See Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 225 (2004) ("The party claiming a breach of the covenant of good faith and fair dealing must provide evidence sufficient to support a conclusion that the party alleged to have acted in bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the parties." (citation and internal quotation marks omitted)).
Bovis further contends that the court erred by not applying the law of the State of New York to this action and thereby conferring to it certain rights to funds held under the Loan Agreement. It argues that our decision in Citibank, N.A. v. Errico, 251 N.J. Super. 236, 243 (App. Div. 1991) requires that we apply Article 3-A of the New York Lien Law in this foreclosure action. It should be noted, in Errico, the note and mortgage specifically provided both would be governed, construed, applied, and enforced in accordance with the laws of New York, except as to matters affecting title to the premises, which would be governed by the laws of New Jersey. Id. at 239-40. In the present matter, Section 10.3 of the Loan Agreement states that the Loan Agreement, the note, and the other loan documents shall be governed by and construed in accordance with the laws of the State of New York. However, the mortgage and security agreement (Mortgage) dated May 17, 2007, between 1180 Astro and Mortgage Electronic Registration Systems, Inc. (MERS) as nominee of BSCMI provides, pursuant to Section 13.1, that it "shall be governed in accordance [with] the laws of the State of New Jersey."
See N.Y. Lien Law, §70 (Consol. 2015).
As the name suggests, MERS is meant only as a tracking system for mortgages; in essence, it is a private recording system designed to simplify transfers of assets between lenders. Bank of N.Y. v. Raftogianis, 418 N.J. Super. 323, 332 (Ch. Div. 2010)
Here, the Mortgage specifically provided it was governed by New Jersey law. Further, Errico was a deficiency proceeding instituted against the borrower after foreclosure of the mortgage and security agreement and this is a foreclosure action. Therefore, we disagree with the contention of Bovis that New York Lien Law should apply.
Even if the Mortgage was governed by New York law, "the provisions of the [New York] Lien Law relating to mechanics' liens and their enforcement apply only to property in the State [of New York]." Allied Thermal Corp. v. James Talcott, Inc., 159 N.Y.S.2d 115, 116 (N.Y. App. Div.), aff'd, 165 N.Y.S.2d 91 (1957). Further "as a matter of construction, that it was not the intention of the [New York] Legislature to make the trust fund provisions of the Lien Law applicable in the absence of a jurisdiction over the improvement." Id. at 117.
Therefore, foreclosure of the Mortgage is governed by the laws of New Jersey. We recognize under prior statutory and case law, materialman's and mechanic's liens could hold priority over a previously filed mortgage where the money obtained through the mortgage was used for some purpose other than construction. Sovereign Bank v. Silverline Holdings Corp., 368 N.J. Super. 1, 5 (App. Div. 2004). Materialman's and mechanic's liens, though, were both eliminated in 1993 under the Construction Lien Law. Id. at 4-5; see also N.J.S.A. 2A:44A-1 through -38. Further, the Construction Lien Law states, "a lien claim . . . shall not . . . have a priority over any mortgage, judgment or other lien or interest in real estate first recorded, lodged for record, filed or docketed." N.J.S.A. 2A:44A-10. We have held that this is "clear in its terms . . . [and] provides priority to all first-filed mortgages over subsequently filed construction liens[.]" Sovereign Bank, supra, 368 N.J. Super. at 8 (citations omitted); see also N.J.S.A. 2A:44A-10.
Since the Mortgage was explicitly governed by New Jersey law, and the New York Lien Law does not apply to the New Jersey Property, we conclude that the motion judge was correct in applying the laws of the State of New Jersey in this foreclosure action.
Bovis next asserts diversions of funds from the completion reserve violated the terms of the Loan Agreement. In her comprehensive findings of fact and conclusions of law, the motion judge specifically found that no funds were diverted for unauthorized purposes. Bovis argues the disbursement for items set forth on the second page of Schedule IV violated the terms of the Loan Agreement. The motion judge concluded the argument of Bovis that the second page of the schedule must be read out of the Loan Agreement was not supported by the plain meaning of the contract. We agree.
One item from page two not challenged by Bovis is the $665,368 "Construction Manager & Supervisory Fee" assumedly owed to it. --------
The judge also addressed the primary issue before the court of "whether to order the recovery of monies through an imposition of a constructive trust." A constructive trust is a remedial device through which the "conscience of equity" is expressed; it will be imposed when a person has acquired possession of or title to property under circumstances which, in good conscience, will not allow the property's retention. Flanigan v. Munson, 175 N.J. 597, 608 (2003); Stewart v. Harris Structural Steel Co., 198 N.J. Super. 255, 266 (App. Div. 1984). In imposing a constructive trust, a court must find that a "wrongful act" caused the property to come into the hands of the recipient and that the recipient will be "unjustly enriche[d]" if it is not returned. Flanigan, supra, 175 N.J. at 608. In that circumstance, the court of equity converts the recipient into a trustee and requires that he account for the res in whatever manner the court deems fair and just. Judge Klein concluded:
All of the cases in which constructive trusts are enforced have as their common theme the concepts of fairness and equity. When the circumstances of this case are examined through that prism, there is no reason to consider the payments from the fund as a wrongful diversion, nor has anyone been unjustly enriched. The court is unable to conclude that even a single disbursement was used for anything other than a legitimate cost of the project. There is also no basis to find that any of the payees were not legitimate contractors, suppliers, vendors, engineers, architects, etc. The largest beneficiary of Draws 15, 16, 17 and 18 was Bovis itself. In short, all of the payments were for construction-related work in accordance with Schedule IV and paragraph 7.6.1. There is nothing here that triggers the "conscience of equity."We determine there is sufficient credible evidence in the record to support the judge's conclusions.
Next, Bovis urges that the significant issues surrounding the disbursements indicate that the court erred in summarily disposing of the case. It asserts the "complex and detailed" issues regarding the individual payments could not be dismissed in a conclusory fashion given the lack of testimony and the incomplete and contradictory record created by the parties' document submissions. Bovis points to specific disputes with U.S. Bank's assertion that "disbursements from the Completion Reserve Fund [were] only for property-related expenses. . . ." However, there is no material issue of fact as to the payee of the funds. Rather, the issue in contention is the interpretation of the provisions of the Loan Agreement in determining whether these purposes were permitted. This does not constitute a dispute of a material issue of fact. We also note, Bovis never objected or requested a hearing after the parties' initial submissions were made, and it only objected after it received the court's decision.
As previously determined, Bovis cannot enforce the terms of the Loan Agreement because it is not a party to the Loan Agreement, mortgage or loan documents and is not a third-party beneficiary. The Loan Agreement specifically provides that there are no third-party beneficiaries, and no one other than the parties to the agreement have standing to enforce any term of the agreement. See Rieder, supra, 227 N.J. Super. at 222.
Further, the submissions to the court by the parties concerning disbursements were voluminous. Judge Klein comprehensively examined the data and appropriately relied on competent evidence in her findings of fact. Although the issues were "complex and detailed" regarding the individual payments, we disagree that the judge dismissed them in a conclusory fashion.
Finally, Bovis contends the court erred in permitting the substitution of Urban Renewal for U.S. Bank. Bovis does not challenge the effectiveness of the assignment documents, but argues since it asserted counterclaims the substitution should have been denied. Rule 4:34-3 vests substantial discretion in the court to determine whether substitution would be appropriate under the circumstances of a particular case. See Pressler & Verniero, Current N.J. Court Rules, comment on R. 4:34-3 (2015). We discern no abuse of discretion.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION