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Johnson v. American Homestead Mortg. Corp.

December 24, 1997


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

Approved for Publication December 27, 1997.

Before Judges Pressler, Conley and Carchman. The opinion of the court was delivered by Pressler, P.j.a.d.

The opinion of the court was delivered by: Pressler

The opinion of the court was delivered by


This is a real estate appraiser malpractice case in which the jury found defendant Donald A. Farinella sixty percent responsible and defendant Brien Danko forty percent responsible for the economic loss sustained by plaintiff Marie A. Johnson for which it returned a total verdict in her favor of $17,000. Plaintiff appeals, asserting that the trial Judge erred in allowing defendants a pro tanto credit of $15,000, the amount of the pretrial settlement plaintiff made with defendant American Homestead Mortgage Corporation (AHMC). She also claims that the jury's damages verdict was against the weight of the evidence and that she was entitled to a remittitur. While we agree that the Judge erred in allowing the credit, we are satisfied that the jury's damages verdict is supported by the evidence and must be affirmed. We therefore remand to the trial court for modification of the final judgment by adding thereto the additional sum of $15,000, to be paid by the defendants in accordance with their respective liability allocations.

This controversy arises out of a so-called reverse mortgage loan entered into between plaintiff and defendant AHMC in September 1986. Plaintiff, recently widowed and burdened by substantial debt, owned her home in Livingston free of all liens. In order to obtain funds, both to pay off the debt and to provide her with an income, she entered into a mortgage arrangement with AHMC whereby she granted it a first mortgage on her property in exchange for a monthly payment to her of $700. The sums so advanced were to be repaid to AHMC on sale of the premises together with interest at the rate of eleven percent and all of the appreciation in the value of the property between the date of the execution of the mortgage and the date of the sale. *fn1 In order to determine the value of the property as of the date of the mortgage, the base-line value, AHMC retained the services of defendant Park Real Estate, a real estate appraisal company owned by defendant Farinella, who also served as the supervising appraiser. The actual appraisal of plaintiff's home was done by Park's employee, defendant Danko. Danko's appraisal, evaluating the then value of the property at $172,000, was reviewed and approved by Farinella.

Plaintiff decided to sell the property in April 1990, listing it for sale at $245,000. Pursuant to her agreement with AHMC, she advised it of her intention to sell, and AHMC initiated the appraisal procedure therein provided for, namely, the selection by each party of an appraiser from a predetermined list. Plaintiff selected Park. AHMC selected an appraiser having no prior connection with the property. *fn2 Park's appraisal, performed by Farinella, valued the property at $220,000, while AHMC's appraiser valued it at $215,000. AHMC then averaged the two appraisals and advised plaintiff that for purposes of her appreciation-payment obligation, the present value was $217,500. Plaintiff sold the property about two months later for $205,000. AHMC demanded, as the appreciation-payment, the sum of $45,500, that is, the difference between the base-line appraisal of $172,000 and the sale-date appraisal of $217,500. *fn3 Plaintiff paid it that sum at closing out of the closing proceeds. This action for the recovery of that money against AHMC, its individually named employees, Park, Farinella, and Danko ensued, all of them alleged to be joint and several tortfeasors on theories of fraud, negligence and professional malpractice.

Suffice it to say that at the time trial commenced, the only remaining defendants were Farinella and Danko, and the only claim remaining against them was based on professional malpractice. AHMC was out of the case, having settled with plaintiff before trial in the amount of $15,000. All claims against its employees individually had been dismissed, and, as trial opened, all cross-claims for contribution against the settling and dismissed defendants were expressly withdrawn.

The basis of the professional malpractice claim was the assertion that Danko had made material errors in the base-line appraisal, notably a seriously erroneous calculation of the square footage of the house and a reliance on comparable sales without adjustments for those value-enhancing features of plaintiff's house that the comparables lacked. It was the opinion of plaintiff's real estate expert that the true value of the property in 1986 was $220,000 and that Danko's errors accounted for his appraisal at $48,000 less. Obviously, if the true base-line value were the amount opined by plaintiff's expert, there would have been no appreciation between 1986 and 1990, and plaintiff would have had no appreciation-payment obligation to AHMC. She therefore sought damages in the full amount of the appreciation value she had paid at closing. For present purposes, it is sufficient to note that the trial proofs supported plaintiff's claim that both Danko and Farinella had erred in the base-line appraisal and that their errors resulted from their deviation from the applicable standards of appraisal practice. The evidence also supports the jury's allocation of fault between them. Neither defendant has, moreover, cross appealed either from the jury's liability verdict or from its allocation of fault.

The gravamen of this appeal arose early in trial during the course of plaintiff's direct examination. The issues were first, whether defendants would be entitled to a credit for the AHMC settlement and second, what, if anything, the jury was to know about it. With respect to the first question, the Judge ruled that a pro tanto credit was appropriate and that defendants were, therefore, entitled to a reduction in the amount of any damages awarded against them in the amount of $15,000. At that point, the attorneys stipulated that the jury would be told of the fact and amount of the settlement, that the settlement was made without any finding or admission of AHMC's liability, and that the amount of the settlement should be deducted from the damages to which the jury would otherwise find plaintiff entitled to. Plaintiff's attorney then stipulated that the maximum amount of damages that could be found in plaintiff's favor was $30,500, that is, the payment she made to AHMC less the AHMC settlement. The case was thereafter tried in accordance with those rulings and stipulations.

We address first the question of the credit. We note first the inapplicability of the collateral source statute, N.J.S.A. 2A:15-97. First, that statute, by its own terms, is limited to "civil actions for personal injury or death." This is patently neither. But even if it were, the statute would not apply. As the Supreme Court made abundantly clear in Kiss v. Jacob, 138 N.J. 278, 281-283, 650 A.2d 336 (1994), the proceeds of a settlement a plaintiff makes with a named defendant who is not found to be liable do not constitute benefits required by the statute to be deducted from the damages verdict.

In view of the inapplicability of the collateral source statute, the question then remains as to how those settlement proceeds are to be treated vis-a-vis the adjudicated tortfeasors. The answer, we think, is plain and well settled by the case law construing the respective obligations of tortfeasors, both alleged and adjudicated, under the Comparative Negligence Act, N.J.S.A. 2A:15-5.1 to 5.8. In sum, as first articulated by Rogers v. Spady, 147 N.J. Super. 274, 277, 371 A.2d 285 (App. Div. 1977), the effect of the Comparative Negligence Law was to replace the former pro rata liability of joint tortfeasors under the Joint Tortfeasors Contribution Law, former N.J.S.A. 2A:53A-1, with the obligation of each tortfeasor to pay damages in accordance with its own adjudicated percentage of fault. A necessary corollary of this scheme is to deny to comparative-negligence joint tortfeasors a reduction of their liability based on a plaintiff's pretrial settlement with a defendant who is never found to be liable at all. Thus, under the comparative-negligence scheme, a plaintiff is entitled to retain the proceeds of the pretrial settlement as well as the full jury verdict as allocated among all other defendants. In this respect, as Rogers pointed out, the comparative-negligence scheme differs from the former Joint Tortfeasors Contribution Law, as construed by Theobald v. Angelos, 44 N.J. 228, 208 A.2d 129 (1965), under which the non-settling defendants were entitled to a pro tanto credit for the proceeds of the settlement made by plaintiff with the settling defendant whose liability was never adjudicated.

The rationale of Rogers v. Spady, (supra) , has been consistently reaffirmed and adhered to. See, e.g., Young v. Latta, 123 N.J. 584, 592, 589 A.2d 1020 (1991); Kiss v. Jacob, (supra) , 138 N.J. at 283-284; Granduke v. Lembesis, 256 N.J. Super. 546, 552, 607 A.2d 988 (App. Div. 1992). Thus, unless the settling defendant's percentage of liability is adjudicated at trial, there is simply no right in the adjudicated tortfeasors to a reduction of their own separately-allocated responsibility for the verdict. We are aware that the percentage of fault of a settling defendant is subject to allocation at trial, but only if the settling defendant's liability is a trial issue either as the result of a cross-claim or because it is tried on notice to plaintiff. See Young v. Latta, (supra) ; R. 4:7-5(c), as amended effective September 1, 1992. Here, the cross-claim was expressly withdrawn, AHMC's liability was not a trial issue ...

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