Opinion
DOCKET NO. A-2976-14T4
02-24-2016
NEW JERSEY HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY, Plaintiff-Appellant, v. ARTHUR L. KROUSE, Defendant-Respondent.
Solomon and Solomon, P.C., attorneys for appellant (Douglas M. Fisher and Norina Melita, on the brief). Respondent has not filed a brief.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Hoffman and Whipple. On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-1390-13. Solomon and Solomon, P.C., attorneys for appellant (Douglas M. Fisher and Norina Melita, on the brief). Respondent has not filed a brief. PER CURIAM
Plaintiff New Jersey Higher Education Student Assistance Authority appeals from a February 3, 2015 Law Division order partially granting defendant Arthur L. Krouse's motion for reconsideration. Plaintiff had obtained a default judgment against defendant, and the sole issue on appeal is whether the trial court erred by setting aside the attorney's fees award in the default judgment order. We discern no error, and thus affirm.
I.
This action arises from four student loans issued by plaintiff to defendant's son, all co-signed by defendant. When defendant's son failed to make payments, plaintiff brought the instant lawsuit against defendant to recover on the loans. In support of its unopposed application for default judgment, plaintiff attached to its certification of proof four promissory note signatory pages, each of which provided that defendant was liable for "collection costs" in the event that his son defaulted on the loans.
On June 4, 2013, the clerk entered a default judgment against defendant for $102,373.18, itemized as follows: $82,543.73 for the principal balance of the loans; $1624.32 in interest; $48.95 in "disbursements"; and, most importantly for purposes of deciding this appeal, $18,156.18 for attorney's fees.
More than a year after the default judgment was entered, on October 9, 2014, Judge Lisa Perez Friscia issued an order authorizing a wage execution against defendant. Defendant filed an opposition to the order on October 20, 2014. Defendant did not contest liability, nor did he challenge the amount of the default judgment award against him. Rather, he sought a stay of the execution until plaintiff provided a full accounting of the amounts he still owed, or, alternatively, a reduction of the amount to be garnished from his wages based on financial hardship. Following a November 21, 2014 hearing, Judge Friscia issued an order to proceed with the wage execution.
Defendant filed a motion for reconsideration and amendment of the wage execution order pursuant to Rule 4:49-2, which was heard on January 23, 2015. Although defendant's brief in support of the motion did not expressly challenge the amount of the default judgment award, it appears that the counsel fees were a primary point of contention at the hearing. Plaintiff's counsel represented at the hearing that promissory notes define the term "collection costs" to include attorney's fees. However, the complete promissory notes for the loans at issue were never introduced into evidence; rather, only the signatory pages were produced for the record.
This hearing is summarized by Judge Friscia in her rider and amplification to the order partially granting defendant's motion for reconsideration. --------
In a written decision, Judge Friscia concluded that while defendant could not establish financial hardship sufficient to warrant a reduction of the wage garnishment order, the default judgment award should not have included attorney's fees. Accordingly, an order partially granting defendant's motion and setting aside the counsel fees award was entered, which is now the subject of this appeal.
Thereafter, on March 10, 2015, Judge Friscia issued an amplification to her written opinion, pursuant to R. 2:5-1(b), explaining in greater detail her decision to set aside the attorney's fees award. The judge explained that "there are no proofs that the defendant guarantor knew or contemplated that counsel fees would attach" in the event of a default on the loans. Specifically, although the promissory note signatory pages indicated that defendant may have to pay "collection costs" in the event of default, the judge emphasized that plaintiff provided no additional evidence establishing that the term "collection costs" included attorney's fees.
II.
This court reviews a trial judge's decision on a reconsideration motion for an abuse of discretion. See Cummings v. Bahr, 295 N.J. Super. 374, 384 (App. Div. 1996). An "abuse of discretion only arises on demonstration of 'manifest error or injustice[,]'" Hisenaj v. Kuehner, 194 N.J. 6, 20 (2008) (quoting State v. Torres, 183 N.J. 554, 572 (2005)), and occurs when the trial judge's decision was "made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis." Jacoby v. Jacoby, 427 N.J. Super. 109, 116 (App. Div. 2012) (quoting Flagg v. Essex Cnty. Prosecutor, 171 N.J. 561, 571 (2002)). However, this court does not defer to the trial judge's interpretation of the law as applied to the facts. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
Plaintiff first contends that the trial judge's order setting aside the attorney's fees award is procedurally deficient. Specifically, plaintiff argues that defendant did not contest the attorney's fees award in his motion for reconsideration, rendering the trial judge's decision to set aside the award sua sponte and "unwarranted given the record before it."
At first glance, it appears that the trial judge's decision to vacate the default judgment's counsel fees award was sua sponte. Defendant's moving papers only include a passing reference to attorney's fees in the statement of facts:
The total combined outstanding balance for the four (4) loans is $77,666.62 . . . . However, Plaintiff's judgment is for $102,373.18 plus interest of $3,048.06. Plaintiff's counsel has advised that the difference may be attorney's fees. Plaintiff's counsel is providing a breakdown of the judgment, but defense counsel has not received the breakdown as of the date of filing . . . this motion.Neither defendant's brief in support of his motion for reconsideration, nor his initial brief in support of his opposition to the wage execution order, contain any argument alleging that the attorney's fees award was inappropriate. Rather, defendant's moving papers merely sought a temporary stay of the wage execution or, alternatively, a reduction — based on financial hardship — of the amount to be garnished from his wages.
Notwithstanding the lack of any written argument in opposition to the attorney's fees award, we conclude that the trial judge did not abuse her discretion by setting aside the award. Although the issue was not raised in any of the briefs, the judge clarified in her amplification opinion that the attorney's fees were contested at the January 23, 2015 hearing on the reconsideration motion. As the issue was discussed and argued at this hearing, plaintiff had sufficient notice that the court could rule on the issue.
Next, citing to Rule 4:50-2, plaintiff argues that defendant's initial objection to the trial court's wage execution order failed to comply with the one-year limitation for filing a motion under Rule 4:50-1. This argument plainly lacks merit, as the one-year limitation in Rule 4:50-2 only applies when relief is sought under subsections (a), (b), and (c) of Rule 4:50-1. As the trial judge expressly granted relief pursuant to Rule 4:50-1(f), the one-year limitation clearly did not apply to defendant's motion.
As for its substantive arguments, plaintiff asserts that there were insufficient grounds for the trial judge to vacate the attorney's fees award. Rule 4:50-1 permits relief from a judgment or order for five enumerated reasons, as well as for "any other reason justifying relief from the operation of the judgment or order." R. 4:50-1(f). Although this catch-all provision should typically be applied sparingly and only when "exceptional circumstances" are present, see Hous. Auth. of Morristown v. Little, 135 N.J. 274, 284-86 (1994), it should be more liberally applied in cases where the requested relief is from a default judgment. See, e.g., Morales v. Santiago, 217 N.J. Super. 496, 505 (App. Div. 1987) (setting aside a default judgment pursuant to Rule 4:50-1(f) when the plaintiff failed to produce any proof of liability).
New Jersey courts generally adopt the American Rule and disfavor fee shifting. Litton Indus. v. IMO Indus., 200 N.J. 372, 385 (2009) (citation omitted). However our state and federal regulatory schemes authorize loan providers to recover attorney's fees incurred when collecting on a loan if such an award is expressly provided for in the promissory note. See R. 4:42-9(a)(8) (permitting attorney's fees "[i]n all cases where attorney's fees are permitted by statute[]"); 34 C.F.R. 682.202(f) (defining "collection charges" to include attorney's fees, and permitting lenders to collect attorney's fees if provided for in the promissory note); N.J.A.C. 9A:10-1.2 (incorporating by reference 34 C.F.R. 682.202(f)). Plaintiff relies heavily upon one provision in particular, deriving from the Administrative Code, which regulates the administration of student loans:
Upon default, the borrower and/or cosigner, if any, are liable for the entire balance of the loan. . . . Default may result in any or all of the following: expedited increase of interest rate, loss of State income tax refunds or State tax rebates, legal action, [and] assessment of collection charges including attorney fees of up to 30 percent of the debt collected . . . .
[N.J.A.C. 9A:10-6.16(b) (emphasis added).]
Pursuant to the regulations cited above, fee shifting is clearly permitted in the context of student loan recovery. However, plaintiff mistakenly interprets these provisions to mean that defendant was obligated to pay its attorney's fees, even without a contractual agreement to that effect. Such an interpretation misreads permissive language as compulsory language. N.J.A.C. 9A:10-6.16(b) simply permits lenders and debtors to contract for fee shifting in the event of default; it does not require them to do so.
Because plaintiff did not produce the entirety of the promissory notes for the loans at issue in this case, the record is devoid of any evidence indicating that the parties contemplated fee shifting in the event of default. Absent express language in the promissory notes referencing attorney's fees, the traditional presumption against fee shifting controls. See Cmty. Realty Mgmt. v. Harris, 155 N.J. 212, 234 (1998).
Plaintiff argues that this court has previously held that attorney's fees are collectible in cases where debtors default on student loans. See N.J. Higher Educ. Assistance Auth. v. Martin, 265 N.J. Super. 564 (App. Div. 1993). However, Martin is clearly distinguishable based on the specific finding that "[t]he notes also contained provisions in which [the guarantor] agreed to pay legal fees and collection costs in the event of a default on the loan." Id. at 566. Here, plaintiff failed to produce the any language referencing attorney's fees. Thus, there was no evidence produced indicating a contractual agreement for the debtor to pay attorney's fees in the event of default. Absent any such evidence, we discern no abuse of discretion in the reconsideration order under review.
Affirmed.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION