APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY D.C. Civil Action No. 80-0845
Before Hunter, Van Dusen and Weis, Circuit Judges.
This appeal arises from an interpleader action brought by the New Jersey Bank (the "Bank"). Two interpleaded parties claim the right to a reserve account (the "Fund") held by the Bank on behalf of Recra-Del Corporation ("Recra-Del"), the third interpleaded party. Both the Community Association of Pocono Farms (the "Association"), by way of a judgment lien against Recra-Del, and the United States, by way of a tax lien against Recra-Del, claim the right to the entire interpleaded fund.
The Association appeals from an order of the United States District Court for the District of New Jersey granting summary judgment and the right to the entire interpleaded fund to the United States. Appendix at 10a. The court, in a letter opinion, ruled that, at the time of the Association's levy, the Fund was unliquidated, uncertain, and contingent, and therefore not subject to levy under the law of New Jersey. Because the Association's judgment lien was dependent upon the validity of the underlying levy, the court held that the Association did not secure a valid judgment lien. Appendix at 4a-9a.
This appeal raises the following issue: Did the lower court err in finding that, on the date of the Association's levy, the Fund was not "certain, noncontingent and liquidated,"*fn1 and, therefore, not subject to levy under the law of New Jersey?
We have reached the following conclusion: Under the applicable New Jersey case law, the Fund satisfied the requirements that it be liquidated, certain, and noncontingent on the date of levy. Second, and in the alternative, the Fund constituted a security interest under the law of New Jersey, and as such was subject to levy without meeting the above requirements.
Therefore, the judgment of the district court will be reversed.
Recra-Del was engaged in the business of selling recreational real estate. As consideration for each lot sold, Recra-Del received from the purchasers chattel paper, security agreements and instruments ("notes and contracts"). Recra-Del entered into a "Dealer's Agreement" with the Bank whereby the Bank would purchase the notes and contracts from Recra-Del for the net amount of each note or contract, less specified charges. Additionally, the Bank would deduct and retain 10 percent of the net amount of each note or contract, which it placed in a non-interest-bearing reserve account. The reserve account was retained by the Bank as security for the performance by Recra-Del of its obligations under the Dealer's Agreement and as security for the payment by the real estate purchasers of the notes and contracts which the Bank now possessed. If a note or contract was not fully paid at maturity, the Bank had the absolute right to charge the unpaid balance against the reserve account. A "maximum reserve amount" was computed monthly by multiplying the total unpaid balance of all purchase notes and contracts by ten percent. If the net amount in the reserve account at the end of any month exceeded the maximum reserve amount, the excess, at the option of the Bank, could be refunded to Recra-Del, provided, however, that no refund could be made which would reduce the balance remaining in the reserve account below $100,000. Appendix at 15a. Upon full payment of all notes and contracts purchased by the Bank, and complete performance by Recra-Del of its obligations under the Dealer's Agreement, the balance remaining in the reserve account was to be paid to Recra-Del. On November 1, 1979, all notes and contracts held by the Bank had been paid in full, and the amount remaining in the reserve account was $130,160.68. Appendix at 17a.
B. The Association's claim
In 1974, the predecessor to the Association sued Recra-Del for breach of contract. A settlement agreement was entered into, and, as collateral for its performance, Recra-Del executed a judgment note in the amount of $510,000 payable to the Association's predecessor. Appendix at 17a. That judgment was entered on January 19, 1976, by the Prothonotary of the Court of Common Pleas of Monroe County, Pennsylvania. In 1977, the Association commenced an action against Recra-Del in the Superior Court of New Jersey based upon the unpaid balance of the judgment.*fn2 On December 8, 1977, a default judgment was entered against Recra-Del in the amount of $489,137.40, together with costs of $110.25. Appendix at 18a.
A writ of execution directed to the Sheriff of Passaic County was issued by the Superior Court on February 3, 1978. Pursuant to the writ, the Sheriff, on March 3, 1978, served a levy on the Bank in the amount of $510,884.22.*fn3 On the date that this levy was served, the Bank's obligation under the Dealer's Agreement to Recra-Del was limited by the Bank's right to charge against the reserve account all unpaid notes or contracts. On June 20, 1978, the Association filed a motion with the Superior Court seeking to force the Bank to pay the Sheriff the monies, debts, rights and credits due from it to Recra-Del. An order was issued on July 21, 1978, directing ...