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Geyer v. Pitney

April 15, 2008

CHARLES W. GEYER, ON BEHALF OF ONE WASHINGTON PARK URBAN RENEWAL ASSOCIATES (OWPURA), PLAINTIFF-APPELLANT/CROSS-RESPONDENT,
v.
PITNEY, HARDIN, KIPP & SZUCH, ATTORNEYS AT LAW OF THE STATE OF NEW JERSEY; PETER A. FORGOSH, ESQ., AN ATTORNEY AT LAW OF THE STATE OF NEW JERSEY; JONATHAN S. BRISTOL, ESQ., AN ATTORNEY AT LAW OF THE STATE OF NEW JERSEY; JOEL ROSEN, ESQ., AN ATTORNEY AT LAW OF THE STATE OF NEW JERSEY; AND DOUGLAS A. KENT, ESQ., AN ATTORNEY AT LAW OF THE STATE OF NEW JERSEY, DEFENDANTS-RESPONDENTS/CROSS-APPELLANTS.



On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-2680-03.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 10, 2008

Before Judges A.A. Rodríguez, Collester and C.S. Fisher.

This legal malpractice action was dismissed by way of summary judgment. In these cross-appeals, we consider defendants' argument that plaintiff lacked standing to bring this suit, and plaintiff's argument that there was sufficient evidence of professional negligence and proximate cause to defeat summary judgment. Although we conclude that the trial judge erred in his view of the merits of some of plaintiff's claims, we direct that the bulk of the action be dismissed without prejudice because we agree plaintiff lacked standing to pursue all but one of his claims. And we also hold that the one claim defendant had standing to pursue was without merit and properly dismissed.

I.

Although our examination of the issues requires a more in-depth analysis, which will soon follow, we first briefly outline the relevant circumstances.

Plaintiff Charles W. Geyer, a partner of One Washington Park Urban Renewal Associates (OWPURA), brought this action on behalf of OWPURA seeking damages based upon the alleged malpractice of defendant Pitney, Hardin, Kipp & Szuch and the individual defendants, who are attorneys affiliated with the firm (hereafter we refer to all defendants collectively as either "the Pitney firm"*fn1 or "defendants"). At a time when OWPURA was in bankruptcy, the Pitney firm represented OWPURA in the refinancing of a first mortgage held on its building in Newark. Prudential Securities, Inc. (Prudential), through another entity, was the lender in the refinancing, but it also intended to sell the mortgage to another entity soon after the closing. To make this resale profitable, it was allegedly important to achieve "remoteness" from the bankruptcy. Accordingly, the property was transferred to a Delaware trust (the Owner's Trust), and its rental income was paid into a "lock box" controlled by Prudential. To further gain remoteness, the parties executed a consent order that would, upon entry, effect a dismissal of OWPURA's bankruptcy action and divest the bankruptcy court of jurisdiction over the parties and the property.

Geyer has alleged that the Pitney firm failed to timely submit the consent order to the bankruptcy judge for execution and entry. As a result of this alleged omission, motions that were filed within weeks of the closing kept the action open and deprived Prudential of the remoteness it sought and rendered unlikely a profitable resale of the mortgage after the closing.

According to Geyer, because its intentions were frustrated by the continued pendency of the bankruptcy action, Prudential manipulated the rental income it controlled through the lock box arrangement and generated a default on the loan, which was followed by Prudential's filing of a foreclosure action.

At or around the same time, the filing of a state court action led to the appointment of a receiver to dissolve OWPURA. While that action was pending, Geyer commenced a legal malpractice action against the Pitney firm that was quickly dismissed because OWPURA's assets, which included that particular chose in action, were held by the receiver.

The receiver later "abandoned" the claim to Geyer who soon thereafter commenced the action at hand. Ultimately, defendants' arguments that Geyer lacked standing to maintain the action were rejected, but the judge granted summary judgment in favor of defendants on the merits. In this appeal, Geyer contends that the trial judge mistakenly granted summary judgment dismissing his complaint. He claims there was sufficient evidence of defendants' breach of professional standards and that there was a legitimate factual dispute concerning whether that breach proximately caused an injury to OWPURA. In their cross-appeal, defendants contend that plaintiff lacked standing to pursue this claim and that the trial judge erred in denying their motion for summary judgment on this ground.

II.

Because the issues raised were resolved by way of summary judgment, we commence our consideration of the parties' allegations by invoking the applicable standard. That is, in considering the parties' contentions, we recognize that Geyer was entitled to have the relevant evidential material viewed by the trial judge in the light most favorable to him. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). He was also entitled to all the legitimate inferences permitted by the record that favored his position. R. 4:46-2(c). These standards also govern our review of the trial judge's determinations. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).

In considering the merits of Geyer's malpractice claims, as well as the argument that he lacked standing to pursue those claims, it is helpful to consider in greater depth the history of this property and the circumstances that led to and through the bankruptcy proceedings and the state court litigation that followed.

A. THE FORMATION OF OWPURA AND ITS DEBT STRUCTURE

The record reveals that OWPURA was formed in 1978 by three equal partners -- Geyer, Richard Wolffe, and a business association entitled Loutel -- for the purpose of constructing a seventeen-story commercial office building in Newark. It was OWPURA's intent that the property would qualify for a statutory municipal tax abatement, commonly referred to as a Fox Lance tax abatement.*fn2 In 1981, the City of Newark granted the Fox Lance abatement for the proposed building. OWPURA thereafter obtained construction financing from two sources: a first mortgage loan from Mutual Benefit Life Insurance Company in the amount of $27,250,000 at 13.5% interest, and a secondary loan from the Newark Economic Development Corporation (NEDC) in the amount of $10,000,000 at 4% interest.

The building was constructed in 1982 and 1983. In 1985, Geyer purchased Loutel's interest in OWPURA, giving him a two-thirds interest in the partnership; Wolffe retained his one-third interest.

Bell Atlantic Corporation became the building's prime tenant, leasing 94% of the rentable space for a twenty-year term, thus providing OWPURA with a predictable income stream. Notwithstanding the stability provided by this long-term lease, OWPURA encountered financial difficulties generated by a lawsuit brought by NEDC regarding the property's management and by other disputes with Bell Atlantic. As a result, OWPURA sought to refinance the existing first mortgage at a lower interest rate, and, in 1988, obtained a commitment for a $36,000,000 loan at 9.25% interest. From these borrowed funds, OWPURA anticipated paying off the existing Mutual Benefit loan, of which $27,000,000 was outstanding, and 80% of the $10,000,000 still owed to NEDC, while retaining $1,000,000 as a reserve fund for the building's management.

NEDC's consent to subordinate, however, was needed to implement this plan. Obtaining consent was frustrated when NEDC's executive director demanded $100,000 annual cash payments as a condition. OWPURA refused. NEDC further attempted to block OWPURA's attempts to refinance the first mortgage and, in 1990, threatened to foreclose because OWPURA fell behind in its payment of taxes on the building. Geyer appeared before the Newark City Counsel and obtained an agreement, which was memorialized in a resolution, for the payment of the taxes due over a period of five years. Undaunted, NEDC filed a foreclosure action against OWPURA within days of the City Counsel's resolution.

NEDC's foreclosure action prompted OWPURA to file for bankruptcy relief in November 1990. The bankruptcy court appointed a trustee, who hired the McCormick Organization to manage the building. OWPURA also filed a RICO suit against NEDC, its executive director, and other Newark officials.

OWPURA's plan of reorganization was confirmed in August 1992. It provided that McCormick would continue to manage the building under the supervision of an advisory committee, which consisted of Geyer, Wolffe, NEDC, and others. In gaining consent for this plan, OWPURA released its RICO claims. The bankruptcy court retained jurisdiction following the adoption of the reorganization plan in order to approve the terms of any future refinancing.

B. ENTER THE PITNEY FIRM AND AN OPPORTUNITY TO REFINANCE

In April 1996, the Pitney firm was appointed by the bankruptcy court as special counsel for OWPURA with regard to the refinancing of the existing mortgages. OWPURA soon caught a fortunate break when Mutual Benefit entered into receivership. In the summer of 1996, as part of the required liquidation of its real estate portfolio, Mutual Benefit offered to accept $17,200,000 in satisfaction of OWPURA's outstanding debt to it of more than $29,000,000.

To take advantage of these circumstances, OWPURA was able to obtain a mortgage commitment of $23,170,000 from Mercantile Mortgage Group. Prior to the closing of the transaction with Mercantile, Prudential agreed to purchase the loan from Mercantile, and Midland Commercial Financing Corp. was designated by Prudential to be the lender in that subsequent transaction. Prudential also intended to sell this loan at a profit quickly after the transaction closed to a Canadian bank, Caisse Depot Gestion.

By order dated July 11, 1996, the bankruptcy court approved the mortgage commitment obtained by OWPURA, authorized the closing of the loan transaction, and directed NEDC to subordinate its existing mortgage to the new mortgage on the condition that certain payments be made from the mortgage proceeds. Accordingly, in addition to the $17,200,000 payoff to Mutual Benefit, the loan proceeds were to be used to make an additional payment of $500,000 to Mutual Benefit, and a payment of $370,000 to NEDC ($185,000 at the time of closing and the $185,000 balance in installments over time). The bankruptcy judge also ordered the transaction to close no later than July 31, 1996, with time being of the essence, in order to meet the deadline imposed for the deeply-discounted payoff to Mutual Benefit. In addition, the bankruptcy judge permitted the transfer of the building to a trust, organized under the laws of Delaware, in order to cause a transfer in form of ownership from OWPURA's existing form as a New Jersey general partnership to a Delaware trust, with the partners of OWPURA having the same ownership in the Owner's Trust as they had in OWPURA.

Geyer has alleged that NEDC and its executive director continued "their obstructionist tactics" in an effort to block the refinancing by refusing, among other things, to execute a standstill/subordination agreement. Following an emergency hearing on August 2, 1996, the bankruptcy judge directed NEDC to sign the standstill agreement and directed that the closing take place on August 6. Because the Pitney firm was not ready to close until August 7, an additional payment of $100,000 had to be made to Mutual Benefit. In addition, despite projections provided by the Pitney firm regarding the amount that would be yielded to OWPURA as a result of the refinancing, OWPURA was required to raise and bring to closing $300,000 to cover claims of unsecured creditors.*fn3

Because Prudential did not want to retain the loan as an income-producing asset, but instead wanted to "flip" it by selling it for a profit within a short time, it desired that the asset be rated as a "commercially viable" investment opportunity within the private-securities marketplace. This required that the asset not be directly connected with the bankruptcy process.

C. PRUDENTIAL'S PURSUIT OF "REMOTENESS" AND THE CONSENT ORDER

In order to obtain the "remoteness" desired by Prudential, a consent order -- which called for the dismissal of the bankruptcy action, the divestiture of the bankruptcy court's jurisdiction over the matter, and the referral of all future disputes to the Chancery Division -- was prepared as part of the closing.*fn4 This consent order was executed by Geyer, counsel for NEDC, and counsel for OWPURA.

The closing took place over the course of a number of days and was eventually completed on August 10, 1996. Despite the considerable time and energy spent in connection with this closing -- and the alleged importance of the consent order --the record is not entirely clear as to what immediately happened with the original order after the closing or precisely when it was submitted to the bankruptcy judge for execution. The consent order is listed as a closing document in a letter circulated by the lender's attorney with closing instructions; that letter indicates, however, that the lender's attorney --not the Pitney firm -- would "take possession" of the consent order at the time of closing. Notwithstanding, the record also contains the Pitney firm's September 20, 1996 letter to the bankruptcy judge that enclosed the "original and two (2) copies" of the consent order. This suggests that the Pitney firm had possession of the original consent order following the closing and did not forward it to the judge for execution until more than one month passed from Saturday, August 10, 1996 -- the day the closing was completed.

As a result, the consent order was not executed or entered by the bankruptcy judge by the time Wolffe filed a motion in the bankruptcy court regarding counsel fees or by the time NEDC filed its motion for the removal of Geyer as the building's manager. With regard to the latter motion, the bankruptcy judge entered a preliminary injunction on October 24, 1996, which temporarily removed Geyer as the building's manager. In short, the opportunity to obtain the dismissal of the bankruptcy action -- a matter of apparent great importance to Prudential -- was lost because motions were filed during the delay in the submission of the consent order.

That is, Prudential anticipated selling the loan to a Canadian entity within four months of the OWPURA-Mercantile closing. As Geyer's expert explained at his deposition, this could not occur because of the continuation of bankruptcy jurisdiction over OWPURA:

Q: . . . Did Prudential, to your understanding, make any arrangement to resell the loan after that?

A: They couldn't.

Q: What's the basis for your saying that?

A: They couldn't. There's no way you can sell, there's no way that Prudential could have made any reps and warranties as to that loan and the enforceability of it in any of its documents because of the bankruptcy.

Q: . . . Was the entry of the [consent] order by the [bankruptcy] judge one of the conditions ...


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