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Interchange State Bank v. Veglia

December 26, 1995


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

Approved for Publication December 26, 1995. Counsel Amended January 24, 1996. As Amended January 24, 1996.

Before Judges Keefe, Wefing and A.a. Rodriguez. The opinion of the court was delivered by Keefe, J.A.D.

The opinion of the court was delivered by: Keefe

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

Plaintiff Interchange State Bank ("Interchange") appeals from the entry of summary judgment in favor of defendants Trico Mortgage Company Inc., United Jersey Financial Corporation, Gerald Veglia and William Bravakis (referred to herein collectively as "Trico"), on Interchange's claim under the New Jersey Racketeering statute, N.J.S.A. 2C:41-1 to-6.2 ("RICO"). Interchange also appeals the entry of summary judgment in favor of Trico on Trico's counterclaim whereby Interchange was found liable to Trico, pursuant to N.J.S.A. 12A:3-419, because it paid on a check made to the order of Trico over a fraudulent endorsement.

This case and related litigation stems from the fraudulent actions of Robert Utter ("Utter"). In or around December 1987, Utter and his wife Gail, (hereinafter occasionally referred to as the "Utters") and Equishare Inc. ("Equishare"), a corporation wholly owned by the Utters, entered into a joint venture with First Central Mortgage Services Inc. ("First Central"), a licensed mortgage company engaged in the origination of first and secondary mortgage loans. Through the joint venture, the Utters and Equishare took over a branch office of First Central in Rochelle Park, New Jersey, and operated it as an independent entity outside of First Central's direct supervision. Utter was given the title of assistant vice-president. By corporate resolution, First Central opened a checking account at Interchange, and the Utters were given exclusive check signing and depository authority.

From December 1987 through January 1989, Utter and Equishare closed on a variety of first and secondary loans in which First Central was named mortgagee or lender of record. During this period the Utters and Equishare generated in excess of $16 million in mortgage loans for First Central.

In the summer of 1988, Trico Mortgage Company contacted John Taylor, the president of First Central, and notified him that it was having problems with a few of the appraisals on loans that it had purchased from First Central. The appraisals in question had been altered to reflect higher values than had been originally reported in order to obtain the loans. The altered appraisal reports had been generated by Utter and Equishare at the Rochelle Park branch of First Central. Trico determined that approximately twenty appraisals had been altered. After new appraisals were completed and a determination made as to whether Trico would suffer financially because of the altered appraisals, Trico agreed to hold the loans as long as it did not have collection problems. There was no official notice given to the mortgagors or to the Banking Commission.

Both Frank Tricarico, the president of Trico, and Taylor believed that Utter was responsible for the altered appraisals because he was the only person at the First Central branch who stood to gain from an increase in the number of loans obtained. Utter was confronted and, in response, sent an indemnification letter dated August 3, 1988 to Trico, the text of which read:

Dear Frank:

Please allow this letter to serve as both a corporate and a personal guarantee from Equishare Inc., its fully owned subsidiaries and Robert and Gail Utter, to Trico Mortgage Company, Inc. in order to indemnify the same from any losses arising from falsification or alteration of any appraisals originating from the office of First Central Mortgage Services, Inc., in Rochelle Park, New Jersey.

This guarantee not only includes any problems of this nature which have already surfaced, but extends to all problems of this type, surfaced or not.

A note on the mortgage on 72 Ahnert Road, North Haledon, New Jersey shall also be executed as additional collateral for this guarantee.

Additionally, in July 1988 it came to light that liens on a First Central mortgagor's property remained unpaid following a mortgage refinancing arranged by Utter. The First Central mortgage had been assigned to Trico. Utter however, failed to pay off the prior mortgage held by Commonwealth Mortgage Co. ("Commonwealth"). Subsequently, Commonwealth went forward with foreclosure proceedings against the mortgagor. In August 1988, Trico also began foreclosure proceedings against the mortgagor, alleging that he had defaulted in payment. The mortgagor answered the Trico complaint and crossclaimed, alleging that Trico had failed to pay off the debt owed to Commonwealth; a condition of the refinancing of the mortgage.

As a result of these events, First Central intensified its supervision over Utter and Equishare. From July 1988 to January 1989, principals from First Central visited the Rochelle Park office several times a week and double checked the closings before bringing the loans to Trico. First Central and Trico also established a system whereby when Utter brought a loan to Trico, Trico would call persons named on the disclosure statement to find out if the check was received.

By January 31, 1989, the Utters and Equishare became disassociated from First Central and entered into a joint venture with Great American Mortgage Corp. ("Great American") to manage a branch office located at the same site in Rochelle Park. Although Tricarico denied it, Edward Roncoroni, a principal of Great American, testified that he discussed Utter's move to Great American with Tricarico on several occasions in late 1988, and January 1989. Tricarico told Roncoroni that Utter did a fine job packaging loans. Again, like the arrangement with First Central, Utter operated the office as an independent entity outside of Great American's direct supervision. Great American opened a checking account at Interchange, with exclusive signatory authority residing in the Utters and their agents. Trico continued to hold the majority of mortgages processed through Great American.

In April 1989, Trico insisted that Utter execute an indemnity/guarantee agreement in which Utter pledged to make good on any losses sustained by Trico because of the alteration of appraisals or "any problems of this nature which have already surfaced but extends to all problems of this type surfaced or not." Trico was identified as the "Lender", and Utter was the "Guarantor". In part the agreement provided:

WHEREAS, Lender has been engaged in a business relationship with Guarantor and First Central Mortgage Services, Inc. and Great American Mortgage Co., whereby they have been purchasing and servicing mortgages issued by Guarantor/and Great American Mortgage Co., and First Central Mortgage Services, Inc. and expects to continue and purchase said mortgages, and

WHEREAS, Guarantor has agreed to protect Lender from any potential foreclosure deficiency or other loss that may result from any mortgages purchased or to be purchased in the future, under certain specific circumstances, set forth below, and

WHEREAS, Rochelle Title Agency, Inc., Equishare Inc., its principals, Robert and Gail Utter, have agreed to guarantee payment to Lender in the event of any such foreclosure deficiencies or other loss.

The agreement was prepared by James Greenberg, an attorney for Trico at the instruction of Tricarico. In the agreement, Utter evidenced the transfer of title to his North Haledon property to Trico as collateral for the various guarantee agreements provided by Utter. The agreement was signed by the Utters and Tricarico on April 18, 1989.

Three days later, on April 21, 1989, suit was filed by Great American and First Central (the Great American suit). Great American and First Central named fifteen parties, including the Utters and Interchange. Trico was not named as a defendant. In the first and second counts of the complaint, Great American and First Central, alleged theft and fraudulent activities on the part of their corporate officer and office manager, Robert Utter. In the sixth count, Great American and First Central alleged that Interchange wrongfully and unlawfully accepted checks, which Utter defalcated, for deposit into checking accounts of Utter companies, namely Equishare and Rochelle Title Agency Inc., in violation of N.J.S.A. 12A:3-419.

Apparently, Utter had devised a scheme whereby he would transfer monies out of the First Central and Great American accounts at Interchange into various Utter-owned corporate accounts, also at Interchange, under the guise of "escrow" or "deferred maintenance." The Utters also embezzled and converted to themselves and their controlled companies portions of certain loan and closing proceeds which were to have been remitted to third parties in accordance with the terms of the loans. In these instances, the Utters would deposit fraudulently endorsed checks into the checking accounts of the Utter controlled companies maintained at Interchange. Interchange accepted the deposits and credited Utters' accounts. Thereafter, Utter would have complete control of the funds. Interchange alleges that Utter was using some of this money to pay off the bad loans placed with Trico. Utter was also arrested on criminal charges stemming from these events in April, 1989.

Prior to committing suicide on August 8, 1989, Utter made a series of tape recordings from his death bed while ingesting vodka and sleeping pills. A portion of his statement follows:

On August 1st of 1988, ah, there was a dramatic turn in our business. The turn in our business was created because of the fact that we found out that I Robert, Utter, although I was not named and I tried to place the blame elsewhere, ah, was in fact, indeed, guilty of changing the values that were set on the appraisals in order to obtain loans and have them purchased. . . .

What I was doing was taking the funds from Great American Mortgage Company's funding account, holding back as much as I could possibly hold back, always paying the actual loan, ah, recipient, ah, because of course, they were sitting there waiting for them and attempting to take and see if I could not possibly, ah, ah, elongate the use of the money in order to pay off the old First Central bills and at which time sometime early in April, Mr. Frank Tricarico became involved and knew what was going on because I had openly admitted to him. Ah, Mr. Tricarico in order to try to ah, protect himself had the house that I was living in sold to him. Now it was sold to him at a cost of $350,000 even though it was appraised at in excess of a half a million or at a half a million dollars. . . .

The checks were deposited in Interchange State Bank even though they were drawn on or to other people, ah. Interchange through their own negligence accepted these deposits and credited the accounts, I, of course, had control of the funds and moved it in whatever manner I saw fit.

On June 12, 1992, more than three years after the Great American suit was instituted, Interchange petitioned the trial court for leave to bring a third party complaint against Trico; two of Trico's former employees, Gerald Veglia and William Bravakis; and United Jersey Financial Corp. ("UJF"), a parent corporation of Trico, based on state RICO and indemnification and contribution theories. By order dated September 15, 1992 Judge James T. Murphy denied the motion, but ordered that the entire controversy doctrine would not bar such actions if timely filed.

Interchange then instituted two separate suits against the aforementioned parties. The first action, from which this appeal ensues, was filed on April 22, 1992 alleging state RICO violations, and is captioned Interchange State Bank v. Veglia, et al., Docket No. BER-L-4704-92. (Pa35). *fn1 Utter had dealings and relationships with several Trico employees, and the president of Trico, Tricarico. These dealings and the Utter death tapes formed the basis of Interchange's RICO conspiracy allegations. Interchange alleged that Trico, Frank Tricarico, Gerald Veglia and William Bravakis all engaged in a pattern of racketeering activity including theft by deception (N.J.S.A. 2C:20-4); falsifying or tampering with records (N.J.S.A. 2C:21-4); misconduct by corporate officials (N.J.S.A. 2C:21-9); commercial bribery (N.J.S.A. 2C:21-10); hindering apprehension or prosecution (N.J.S.A. 2C:29-3); as well as violations of state and federal banking laws including, N.J.S.A. 17:11(b)-14(e).

In June 1992, Trico filed a motion for dismissal of the complaint for failure to state a claim upon which relief can be granted R. 4:6-2. The motion was based upon the premise that no RICO action could lie against Trico as a matter of law under Holmes v. Security Investor Protection Corp., 503 U.S. 258, 112 S. Ct. 1311, 117 L. Ed. 2d 532 (1992), because Trico's actions were not the proximate cause of any of the damages claimed by Interchange.

Thereafter, Interchange amended its original complaint to allege that it had been damaged by the entry of judgment against it in the Great American suit. In particular, by way of its RICO claim, Interchange sought to recoup from Trico the losses it might sustain in connection with the Great American judgment entered against it under N.J.S.A. 12A:3-419 for improperly honoring checks that lacked endorsement by the named payee. *fn2 Interchange's amended complaint also asserted claims of negligent supervision against Trico and UJF. By order dated September 15, 1992, Judge Murphy dismissed the second count of the complaint which alleged negligent supervision of the activities of Trico's officers, employees, and agents. *fn3

Trico then filed an answer to the amended complaint responding to the remaining RICO count. Trico also asserted a counterclaim against Interchange. In the fourth count of the counterclaim, Trico sought judgment against Interchange for having improperly honored a check in the amount of $119,820.58 made payable to Trico but deposited into one of Utter's accounts over a false endorsement in violation of N.J.S.A. 12A:3-419.

In November 1992, Trico filed a motion for partial summary judgment on the fourth count of its counterclaim. Judge Murphy granted Trico's motion on January 8, 1993, and entered partial summary judgment against Interchange in the amount of $119,820.58, plus prejudgment interest. The Judge found that when the subject check was honored by Interchange, which was both the drawee and collecting depository bank without Trico's endorsement there was common law conversion of funds. Interchange's motion for leave to appeal was denied by this court on February 23, 1993.

In the meantime, discovery continued and several depositions were taken of Interchange's officers and employees. The result of the discovery was a stipulation by Interchange that neither its officers nor its employees were influenced, let alone improperly influenced, by Trico to cash or accept for ...

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