contained in an agreement separate from the mortgage. Id. The court further noted that under New Jersey law an assignment may have conditions. Specifically, New Jersey law permits an absolute assignment to be conditioned upon the default of a mortgage. In such a case, the conditional assignment would become absolute upon default of the mortgage debt. The court found that the parties had executed an absolute assignment of title, conditioned upon the default of the mortgage, with the assignor receiving a license to collect the rents. Thus, the assignor had no interest in the rents collected following its default on the mortgage. Id.
Similarly, the Assignment executed by Woods and Penn Mutual evidences an absolute assignment of the Lease and the rents, with Woods receiving nothing more than a license to collect the rents and a reversion interest should the note be completely repaid. The language of the Assignment unambiguously expressed an agreement to assign present title, while explicitly creating for Woods a license to collect the rents. Relying on Jason Realty, the Court finds that this instrument was an absolute assignment of the Signet lease and the rents due under it. Woods, therefore, lost its rights and interest in those rents upon execution of the assignment and may not now seek their recovery through a breach of lease claim against Signet. The only party in interest with a right to those rents is Penn Mutual, which currently seeks such recovery in a separate suit in New Jersey state court.
Woods further argues that the Assignment did not serve to automatically relieve it of its role as landlord under its lease with Signet, even upon default. For instance, Wood points to language in the Assignment that directed Woods to continue to perform its duties as landlord under the lease following the Assignment and relieved Penn Mutual from performing any duties under the Lease.
Woods argues that these provision evince an assignment of the rents as collateral rather than a transfer of title from Woods to Penn Mutual. The Court takes note of this language in the Assignment, but will nonetheless follow the Third Circuit's holding that an assignment of rents is "quintessentially absolute" where the instrument conveyed, transferred, and assigned to the mortgagee the lessor's rights, titles, and interests in and to leases, together with all rents. Jason Realty, 59 F.3d at 427.
Because the Assignment transferred all of Woods' title to and interest in the Lease to Penn Mutual, Woods is unable to maintain an action against Signet for breach of the Lease.
Accordingly, the Court will grant summary judgment to Signet on Count One of the complaint.
2. The Tortious Interference Claim
Signet also seeks summary judgment on Damon Douglas' and GRC's claim that by vacating the Lease, Signet tortiously interfered with the contracts and economic relationships between Damon Douglas and GRC and Woods. In the Complaint, Damon Douglas and GRC allege that Signet breached the Lease knowing that its actions would not only extinguish Damon Douglas' interest in the property, thereby terminating its ground lease with Woods, but also destroy GRC's management contract with Woods. Damon Douglas and GRC further allege that they were damaged because they were to have been third-party beneficiaries to the loan restructuring deal that was never performed because of Signet's alleged breach of the Lease.
In support of its summary judgment motion, Signet argues that because neither GRC nor Damon Douglas were parties to the Letters of Intent, they may not claim any injury as a result of the failure of the letters to be executed. Essentially, Signet argues that no prospective economic or contractual relationship existed with which it could have interfered by vacating the Premises because neither Damon Douglas nor GRC were privies to the Letters of Intent. Signet also argues that plaintiffs have pointed to no facts that support their allegation that Signet vacated the Premises with the requisite intent or malice to tortiously injure GRC and Damon Douglas and their relationship with Woods.
Damon Douglas and GRC claim that they were injured by Signet's act of vacating the Premises because the proposed loan restructuring between Penn Mutual and Woods, as evidenced by the Letters of Intent, was never realized. In order to prove tortious interference with a contract, however, there must be an existing contract. Norwood Easthill Assocs. v. Norwood Easthill Watch, 222 N.J. Super. 378, 383, 536 A.2d 1317 (App. Div. 1988). The parties agree that the Letters of Intent did not constitute a contract, and therefore the Court will construe Damon Douglas' and GRC's claims in this regard as those for tortious interference with a prospective economic relationship.
The Court will treat the claims relating to Signet's alleged interference with Damon Douglas' ground lease and GRC's management contract, however, as claims for tortious interference with existing contracts.
To establish a prima facie case of tortious interference, New Jersey law requires a plaintiff to demonstrate that it was in pursuit of some "reasonable expectation of economic advantage" with which the defendant knowingly interfered. Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 186 (3d Cir. 1992), cert. denied, 507 U.S. 921, 113 S. Ct. 1285, 122 L. Ed. 2d 677 (1993); Sgro v. Getty Petroleum Corp., 854 F. Supp. 1164, 1183 (D.N.J. 1994); Harris v. Perl, 41 N.J. 455, 461-61, 197 A.2d 359 (1964). Second, the plaintiff must prove a reasonable probability that the plaintiff would have received the anticipated economic benefit in the absence of the defendant's interference. Fineman, 980 F.2d at 190; Sgro, 854 F. Supp. at 1183 (citing Leslie Blau Co. v. Alfieri, 157 N.J. Super. 173, 185-86, 384 A.2d 859 (App. Div.), certif. denied, 77 N.J. 510 (1978)). To establish tortious interference with an existing contract, a plaintiff must demonstrate an existing contractual relationship and the intentional interference with that relationship. Norwood Easthill Assocs., 222 N.J. Super. at 384. Both of these torts require the plaintiff to prove that the defendant's interference was intentional and malicious. Fineman, 980 F.2d at 190; Printing Mart-Morristown v. Sham Elec. Corp., 116 N.J. 739, 751, 563 A.2d 31 (1989).
In this setting, "'malice is not used in the literal sense requiring ill will toward the plaintiff.'" Harris, 41 N.J. at 461-62 (quoting Restatement (Second) of Torts § 37 at 5 (1979)). Instead, malice is defined as "the intentional doing of a wrongful act without justification or excuse." SGRO, 854 F. Supp. at 1183; Raymond v. Cregar, 38 N.J. 472, 480, 185 A.2d 856 (1962) (citing Louis Schlesinger Co. v. Rice, 4 N.J. 169, 181, 72 A.2d 197 (1950)). To show "malice," the plaintiff must show that the defendant's conduct was "'transgressive of generally accepted standards of morality'; that is, a violation of standards of 'socially acceptable conduct.'" Baldasarre v. Butler, 254 N.J. Super. 502, 526, 604 A.2d 112 (App. Div. 1992), aff'd in relevant part, rev'd in part, 132 N.J. 278 (1993) (quoting Leslie Blau Co. v. Alfieri, 157 N.J. Super. 173, 189, 384 A.2d 859 (App. Div.), certif. denied, 77 N.J. 510 (1978)). New Jersey courts interpret this so that the inquiry becomes whether the defendant's interference was "sanctioned by the 'rules of the game.'" Printing Mart, 116 N.J. at 757 (quoting Sustick v. Slatina, 48 N.J. Super. 134, 144, 137 A.2d 54 (App. Div. 1957)).
Interpreting New Jersey law, the federal courts in this circuit require a plaintiff seeking to recover for tortious interference to show that the defendant specifically intended to interfere with that particular plaintiff. Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1170 (3d Cir. 1993); Fineman v. Armstrong World Indus., 774 F. Supp. 225, 250-51 (D.N.J. 1991), aff'd in part, rev'd in part on other grounds, 980 F.2d 171 (3d Cir. 1992), cert. denied, 113 S. Ct. 1285 (1993). See Restatement (Second) of Torts § 766, comment p ("to subject the actor to liability under this rule, his conduct must be intended to affect the contract of a specific person"). Thus, in order to maintain a claim under this tort, Damon Douglas and GRC must prove that Signet breached the Lease and vacated the Premises--thereby preventing a renegotiation of the loan--for the specific purpose of interfering with their contracts with Woods and preventing them from realizing an economic gain from the completion of the deal.
Assuming, arguendo, that Signet breached the Lease, Damon Douglas and GRC have neither alleged nor set forth any facts tending to show that Signet did so intentionally and maliciously in order to affect their contracts and relationships with Woods. The Court's obligation is to ascertain whether the plaintiffs have offered sufficient "affirmative" and "concrete evidence" to defeat Signet's summary judgment motion, see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986), and it finds that they have not. Damon Douglas and GRC have failed to demonstrate, either directly or by permissible inference, that by vacating the Premises and allegedly breaching the Lease, Signet specifically intended to injure them and interfere with their relationship with Woods. Thus, the Court will grant' Signet's motion for summary judgment on Count II of the complaint.
C. Penn Mutual's Motion to Dismiss Pursuant to Rule 12(b)(6) or, Alternatively, for Summary Judgment
Accepting the facts in the pleadings as true and giving them all reasonable inferences, a court must dismiss under Federal Rule of Civil Procedure 12(b)(6) "if as a matter of law 'it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegation.'" 490 U.S. 326-27. A court may not grant a 12(b)(6) motion "unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). Ordinarily, when a Court relies upon matters outside of the pleadings in deciding a motion to dismiss, it may convert the motion into one for summary judgment, pursuant to Federal Rule of Civil Procedure 12(c). Wiley v. Hughes Capital Corp., 746 F. Supp. 1264, 1275 (D.N.J. 1990). Because the Court has examined the exhibits and documents accompanying these motions, it will treat Penn Mutual's motions as summary judgment motions.
1. The Negligence Claim
Each of the three plaintiffs in this case alleges that Penn Mutual was negligent in its attempt to dispossess Signet from the Premises by naming it in the state foreclosure action. Plaintiffs do not dispute that Penn Mutual, as the mortgagee, had the contractual right to name Signet to the foreclosure action. They contend, however, that although Penn Mutual had such a right, it should not have exercised it. Count III of the Complaint alleges that Penn Mutual was negligent for doing so while at the same time requiring Signet's possession of the premises as part of the loan restructuring agreement with Woods.
It is a well established principle of tort law that a plaintiff seeking to recover under a negligence theory must show that the defendant owed the plaintiff a duty to act or not to act. Kelly v. Gwinnell, 96 N.J. 538, 544, 476 A.2d 1219 (1984). If the breach of this duty is the proximate cause of the injury at issue, then the defendant will be found to have acted negligently. Harrah v. Minnesota Mining & Mfg. Co., 809 F. Supp. 313, 318 (D.N.J. 1992) (citing Prosser and Keeton on Torts, Ch. 5, § 30 at 164 (5th ed. 1984)). Further, the issue of whether a duty exists to support a negligence claim is an issue of law for the court to decide. Rustay v. Consolidated Rail Corp., 775 F. Supp. 161, 163 (D.N.J. 1991); Wang v. Allstate Ins. Co., 125 N.J. 2, 15, 592 A.2d 527 (1991).
In support of their negligence claim, plaintiffs offer an abundance of legal arguments and case law allegedly supporting the proposition that a mortgagee owes a duty not to impair the collateral that secures a debt. The Court notes, however, that the cases relied upon by plaintiffs fail to address the factual scenario presented here. Instead, plaintiffs rely upon cases that do not involve debtor-creditor rights, but instead involve such issues as the rights of guarantors in deficiency actions. The Court finds plaintiffs arguments to be unpersuasive.
In the event of default, Penn Mutual clearly had a right under the loan documents to take whatever action it deemed appropriate to enforce its security interest in the Premises. This included the right to "institute and maintain an action of mortgage foreclosure," to "sell and cause to be sold any of the Mortgaged Premises at public sale," and to "take such other action at law or in equity for the enforcement of any loan document as the law may allow." Under the Mortgage, Penn Mutual similarly had the right to take appropriate action with respect to the Lease, including the performance of "any acts which Mortgagee deems proper to protect the security of [the] Mortgage."
Also, the Court agrees with Judge Diana's Opinion in the foreclosure action that Penn Mutual acted prudently in its decision to join Signet as a defendant. As Judge Diana stated, "it is sound practice for a plaintiff mortgagee to join in its foreclosure action 'all persons who may have any possible interest which may affect the value of the land so that their interests may be extinguished by the foreclosure sale.'"
See The Penn Mutual Life Insurance Co. v. Woods Corporate Plaza, Docket No. F-2280-93, Transcript of Judge's Decision (quoting Cunningham and Tischler, 30 New Jersey Practice § 221 Law of Mortgages at 80 (1975 and 1994 Cumm Supp.)).
Most importantly, the Court finds as a matter of law that Penn Mutual owed no duty to Woods, Damon Douglas, or GRC not to join Signet as a party in the New Jersey foreclosure action. Plaintiffs' claims that the mortgagee owed them a duty has no support in the case law. Instead, New Jersey courts have held that the implied duty of good faith and fair dealing may not be extended to "preclude a creditor from exercising its bargained-for rights under a loan agreement." Glenfed Fin. Corp. v. Penick Corp., 276 N.J. Super. 163, 175-79, 647 A.2d 852 (App. Div. 1994), certif. denied, 139 N.J. 442 (1995). Thus Penn Mutual's exercise of its own contractual rights may not be held to be a breach of some implied duty owed to the mortgagor.
Further, the Third Circuit has stated that debtor-creditor relationships are rarely found to give rise to a duty on the part of the creditor. Paradise Hotel Corp. v. Bank of Nova Scotia, 842 F.2d 47, 53 (3d Cir. 1988). The Court heeds the advice or the court in Paradise Hotel that it "'would be anomalous to require a lender to act as a fiduciary for interests on the opposite sides of the negotiating table,'" given the parties' essentially adversarial positions. Paradise Hotel Corp., 842 F.2d at 53 (quoting Weinberger v. Kendrick, 698 F.2d 61 (2d Cir. 1982), cert. denied, 464 U.S. 818 (1983); see also Globe Motor Car v. First Fidelity, 273 N.J. Super. 388, 393, 641 A.2d 1136 (Law Div. 1993).
The Complaint alleges no facts giving rise to a duty, much less a fiduciary duty owed by Penn Mutual, and without such a duty, Woods, Damon Douglas, and GRC may not maintain an action in negligence against Penn Mutual. Bradshaw v. Rawlings, 612 F.2d 135 (3d Cir. 1979), cert. denied, 446 U.S. 909 (1980). Accordingly, the negligence claim must fail, and the Court will grant summary judgment to Penn Mutual on Count III of the Complaint.
2. The Breach of Oral Agreements & Bad Faith Claims
The final Count in the Complaint asserts a claim against Penn Mutual for breach of its oral promises to modify the loan documents and for bad faith in connection with its conduct during the course of the negotiations. Where, as here, the non-movant bears the burden of proof on the issue that is the subject of the summary judgment motion and is confronted with the movant's argument that the established facts do not support the claim, the party must identify evidence in the record sufficient to establish every element essential to the claim. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986).
New Jersey courts clearly hold that every contract contains an implied covenant of good faith and fair dealing. Association Group Life, Inc. v. Catholic War Veterans, 61 N.J. 150, 153, 293 A.2d 382 (1972); Noye v. Hoffmann-La Roche Inc., 238 N.J. Super. 430, 432, 570 A.2d 12 (App. Div.), certif. denied, 122 N.J. 146 (1990). The covenant provides that "neither party shall do anything which will have the effect Of destroying or injuring the right of the other party to receive the fruits of the contract." Palisades Properties, Inc. v. Brunetti, 44 N.J. 117, 130, 207 A.2d 522 (1965). The New Jersey Supreme Court has found that the covenant could be breached even when the defendant's acts "did not literally violate" the agreement in issue, Catholic War Veterans, 61 N.J. at 153, if a party to the contract engaged in some behavior "not contemplated by the spirit of the contract and [that] fell short of fair dealing." Id.
By refusing to execute an agreement to renegotiate the loan, Penn Mutual did nothing more than exercise its contractual rights to protect its interest in the security. As stated by the court in Glenfed, a creditor's clear duty to act in good faith does not encompass "compromising its contractual rights in order to aid its debtor." 276 N.J. Super. at 175-79. Penn Mutual had no obligation to agree to a loan modification, and its failure to do so cannot be said to be "bad faith." National Community Bank v. G.L.T. Indus., Inc., 276 N.J. Super. 1, 4, 647 A.2d 157 (1994).
Plaintiffs have failed to point to any facts that demonstrate that Penn Mutual breached its duty of good faith by exercising its contractual right to join Signet as a party in the foreclosure action. Nor have plaintiffs presented evidence tending to show that Penn Mutual's decision not to complete the proposed restructuring deal fell short of fair dealing. Woods, Damon Douglas, and GRC have failed to meet their burden of setting forth facts sufficient to support their claims of bad faith. Accordingly, the Court will grant summary judgment to Penn Mutual on Count IV of the Complaint.
For the reasons stated above, the Court grants the motions of defendants Signet and Penn Mutual for summary judgment on all counts of the Complaint.
JOEL A. PISANO
UNITED STATES MAGISTRATE JUDGE
JOEL A. PISANO, UNITED STATES MAGISTRATE JUDGE:
Presently before the Court are the motions of defendants Signet Star Holdings, Inc. and Penn Mutual Life Insurance Company for summary judgment and the cross-motion of plaintiffs Woods Corporate Associates, Damon G. Douglas, and GRC Management Company to abstain from exercising its jurisdiction and remand this action to state court. On May 16, 1995, the parties consented to the jurisdiction of the undersigned to decide these dispositive motions, pursuant to 28 U.S.C. § 636(c)(1).
The Court did not hear oral argument and has decided these motions based upon the written submissions of the parties, pursuant to Federal Rule of Civil Procedure 78.
For the reasons stated in the accompanying Opinion, and for good cause having been shown,
IT IS on this 21st day of December, 1995,
1) that plaintiffs' motion to abstain or remand is DENIED; and
2) that the motions of defendants Signet Star Holdings, Inc. and Penn Mutual Life Insurance Company for summary judgment are GRANTED.
JOEL A. PISANO
UNITED STATES MAGISTRATE JUDGE