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2175 Lemoine Ave. Corp. v. Finco

Decided: April 26, 1994.


On appeal from the Superior Court of New Jersey, Law Division, Bergen County.

Before Judges Michels, Skillman and Kestin.


The opinion of the court was delivered by MICHELS, P.J.A.D.

Third-party defendant Karen N. Wattiker (Ms. Wattiker) appeals and third-party plaintiffs Finco, Inc. (Finco) and Germano Valle (Valle) cross-appeal from portions of a judgment of the Law Division entered after a lengthy bench trial in this extremely complex matter. Specifically, Ms. Wattiker appeals from that portion of the judgment that awarded Finco damages in the sum of $111,283 for her legal malpractice. Finco and Valle cross-appeal from the damages portion of the judgment contending that the trial court erred in failing to award them attorneys fees in connection with the underlying declaratory judgment action.*fn1

The facts and procedural history giving rise to this appeal are set forth in the trial court's letter opinions of December 6, 1990 and July 19, 1991, and need not be recounted here. It is sufficient for our purposes to point out that the underlying action was instituted by plaintiff 2175 Lemoine Avenue Corporation, the owner of real property located at 2175 Lemoine Avenue, Fort Lee, New Jersey, against defendants Finco, Valle, 2175 Finco, a partnership, AmEuro Capital Corporation and Morgran Stiftung, a Lichtenstein Corporation, seeking a declaration that an option granted to Finco to purchase a fifty percent interest in the Lemoine Avenue property and the granting of a one-half of one percent interest in the 2175 Finco partnership to Finco were void and unenforceable. Plaintiff claimed generally that it was defrauded and that Finco improperly obtained the option and the partnership interest. In addition to denying the allegations of the complaint and filing a cross-claim against AmEuro Capital Corporation and a counterclaim against plaintiff, Finco and Valle filed a third-party complaint against Ms. Wattiker and her husband, third-party defendant William Wattiker, the principal stockholder of plaintiff, charging Ms. Wattiker with legal malpractice and charging both Ms. Wattiker and her husband with intentional interference with a prospective economic advantage, fraud, prima facie tort, conspiracy and defamation in connection with a loan transaction involving the Lemoine Avenue property.

At the Conclusion of the proofs, the trial court declared that Finco's option to purchase a fifty percent interest in the Lemoine Avenue property and Finco's interest in the 2175 Finco partnership were invalid because they violated the New Jersey Real Estate License Act, N.J.S.A. 45:15-1 et seq. In reaching this Conclusion, the trial court, in part, reasoned:

To recapitulate, the Act is clear. Anyone who attempts, offers to or negotiates a loan secured by real estate is a broker. Valle certainly negotiated the terms of the 2175 loan with William Wattiker, the owner of the real estate, and with Karen Wattiker, 50% owner of AmEuro, the mortgagee. Valle certainly arranged the financing from Morgran to AmEuro. He negotiated "a loan secured or to be secured by a mortgage or other encumbrance upon or transfer of real estate for others" (N.J.S.A. 45:15-3). This activity constitutes real estate brokerage activities, and the law clearly states that "No person shall engage either directly or indirectly in the business of a real estate broker . . . without being licensed to do so as herein provided." (N.J.S.A. 45:15-1, emphasis added). Merely establishing a contract between parties to a real estate transaction by an unlicensed person violates the statute. Corson v. Keane, supra[, 4 N.J. 221 (1950)]. Valle certainly was compensated for these activities by receipt of an option and a partnership interest in 2175.

Since neither Valle nor Finco had a New Jersey Real Estate Brokers license, they acted in violation of the Act and of the strong public policy of this State. This option, given as consideration for arranging financing is illegal and consequently cannot be enforced.

Accordingly, 2175's Declaratory Judgment action is granted, and the option is hereby declared void and unenforceable. Therefore, it is unnecessary to decide whether said option constitutes a clog on the equity of redemption. Even if the option did so, this Court will not assist a party to the illegal contract creating that clog in removing it. However, the Court is convinced the option did not create a clog.

Here, the option is not a disguised security device. To the contrary, it was clearly given as compensation for obtaining more than 100% of the financing for 2175. Exercise of the option was not contingent upon a default. It has a fixed expiration date, as well as a price.

There is nothing unconscionable or oppressive about this option; it was just illegal! The option was granted as consideration for placing a loan to be secured by a mortgage, although the parties tried to disguise same by terming it a security, sold by AmEuro to Morgran, which claim this Court has rejected. The idea of the option and the drafting of the option was done by a New Jersey attorney, Karen Wattiker. Whether this, in and of itself, or in connection with other conduct on the part of Ms. Wattiker, is legal malpractice which entitles Valle to damages is an issue to be decided infra. But it is certainly not a clog on the equity of redemption.

The trial court then dismissed Finco and Valle's claims against Ms. Wattiker and her husband for interfering with their prospective economic advantage on the ground that Valle's negotiating loans secured by mortgages required his appropriate licensure and since Valle could not legally engage in this business, Finco and Valle were barred by statute from maintaining this action. The trial court also dismissed their claims based on theories of prima facie tort, conspiracy and fraud.

However, the trial court held that Ms. Wattiker was guilty of legal malpractice in connection with the transaction. The trial court found that Ms. Wattiker "negotiated and structured the transaction on both sides, prepared all the documents, undertook responsibility for New Jersey law, and solely handled the closing" of the loan from Morgran Stiftung to plaintiff placed by Finco through AmEuro Capital Corporation. The trial court held that Ms. Wattiker "had a duty to Finco/Valle, as clients, former clients, and even as non-clients," and that she

had a duty to know the law relative to the New Jersey Brokerage Statute, N.J.S.A. 45:15-1 et seq., and to inform Valle/Finco of same and of its possible effect on the option she was preparing. Procanik by Procanik v. Cillo, 226 N.J. Super. 132, 150, 54 ...

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