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MMU of New York Inc. v. Grieser


May 21, 2008


On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, L-8130-91.

Per curiam.


Submitted May 6, 2008

Before Judges Skillman and Winkelstein.

On October 31, 1990, defendant Gary Grieser, as tenant, entered into a ten-year commercial lease (the lease) with 200 Ocean Boulevard Associates (the landlord) for the second floor of a building at 200 Ocean Boulevard in Monmouth Beach.*fn1

Defendant subsequently failed to pay rent and plaintiff, as the assignee of the landlord, obtained a default judgment against defendant on May 20, 1992, for $1,630,481.69 (the default judgment). Defendant has filed multiple motions to vacate the default judgment, all of which have been denied. On March 19, 2004, the Law Division entered an order prohibiting him from filing further motions contesting the validity of the default judgment without leave of court. Defendant did not appeal from that order.

In this appeal, defendant challenges the Law Division's June 14, 2007 order denying his motion for leave to challenge the default judgment. We conclude that the trial court mistakenly exercised its discretion by denying that motion, and consequently, we reverse and remand for further proceedings.

The material facts and procedural history relevant to defendant's current application are as follows. On April 22, 1991, defendant filed a Chapter 7 bankruptcy petition, but failed to list the lease as a liability or an asset, and failed to list the landlord as a creditor. Though defendant occupied the leased premises until October 1991, he did not pay rent after he filed his bankruptcy petition.

On October 31, 1991, the landlord filed a complaint in Superior Court seeking past due rent, as well as rent for the approximately nine years remaining on the term of the lease. The landlord served defendant by publication, and obtained the default judgment.

On September 26, 1996, defendant obtained title to a property at 3 Ocean Avenue in Monmouth Beach. After plaintiff levied on that property, defendant filed an order to show cause to stay the sheriff's sale, and to vacate the default judgment. He claimed that the underlying debt upon which the default judgment was based had been discharged in bankruptcy. The trial court denied the application. In an unpublished opinion, we affirmed the court's denial of defendant's application to vacate the default judgment. MMU of N.Y. v. Grieser, No. A-4441-00 (App. Div. May 3, 2002). We held that the debt was not discharged because it was a post-petition debt; defendant's argument that the debt was discharged even though it was not listed on his bankruptcy schedules had no merit; and defendant had "unclean hands on a matter closely related to his discharge in bankruptcy which under state law warrants denying him the relief afforded by the statute." Id. (slip op. at 6-8).

Plaintiff obtained the property at a sheriff's sale for $100 in September 2001. The following month, plaintiff entered into a contract to sell the property for $1,175,000.

Defendant filed a pro se motion in May 2003 to set aside the default judgment. The Law Division entered an order on June 27, 2003, denying the motion and amending the default judgment to reflect defendant's aliases. Defendant moved for reconsideration. The court denied the motion and included the following prohibition in a March 19, 2004 order: "Defendant is prohibited from filing any further motions contesting the validity of the Judgment dated May 20, 1992 bearing Docket No. MON-L-8130-91 and Judgment No. J-062123-92 without prior leave of the court to file such motion."

On January 16, 2007, defendant filed a motion for an accounting of the amount due on the default judgment. Defendant withdrew the motion after plaintiff voluntarily provided him with the requested materials. These documents reflect a balance due on the default judgment, as of February 16, 2007, of $1,681,883.40. They show that in an attempt to satisfy the default judgment, plaintiff collected the following amounts: $1,131,695.69 on the sale of 3 Ocean Avenue in Monmouth Beach; $100,000 on 34 Park Road in Monmouth Beach; $24,000 on properties in Sea Bright and Asbury Park; $15,000 on a property in Plainfield; and $15,000, $27,444, and $7500 for three properties in Paterson.

In April 2007, defendant filed a motion seeking leave to challenge the validity of the default judgment. The trial judge denied that motion by order of June 14, 2007. The court reasoned that defendant's unclean hands precluded him from substantively challenging the default judgment. In arriving at its decision, the trial court referred to our May 3, 2002 decision, in which we stated: "Grieser's conduct in failing to disclose the lease, aside from whatever ramifications it might have in bankruptcy, together with his continued occupancy of the premises following the petition without payment of rent, amounts to "'unclean hands.'" Id. at 7.

Against this factual and procedural background, we limit our discussion to whether the trial court properly denied defendant the right to file a motion to substantively challenge the default judgment. We do not address the validity of the March 19, 2004 order precluding the filing of motions without leave of court, in that defendant did not timely appeal from that order. See Rule 2:4-1(a) ("Appeals from final judgments of courts . . . shall be taken within 45 days of their entry.").

The court denied defendant the opportunity to substantively challenge the default judgment, primarily relying on the equitable doctrine of "unclean hands." The court reasoned that because defendant remained in the leased property for six months after he stopped paying rent, he had unclean hands and was not entitled to relief. The judge also expressed displeasure with the number of motions defendant had filed since the inception of the case in 1991. The court commented that defendant has "filed . . . 100 [motions] before this."

The doctrine of unclean hands is an "equitable principle that a court should not grant relief to one who is a wrongdoer with respect to the subject matter in suit," and its application is left to the court's discretion. Borough of Princeton v. Bd. of Chosen Freeholders, County of Mercer, 169 N.J. 135, 158 (2001). This maxim of equity is applied when "the misconduct is connected with the matter in litigation." Feldman v. Urban Commercial, Inc., 78 N.J. Super. 520, 533 (Ch. Div. 1963), aff'd, 87 N.J. Super. 391 (App. Div. 1965); see also Artushenia v. Artushenia, 115 N.J. Eq. 80, 82 (E. & A. 1934) ("The improper conduct which will work an estoppel in equity must be in connection with the transaction in which relief is sought.").

Applying these standards to the facts here, we conclude that the court misapplied the doctrine of unclean hands. Simply because defendant occupied the leased premises for six months without paying rent does not preclude him from challenging the validity or amount of the default judgment. The default judgment appears to have been based on the total amount of rent due under the remaining nine-year term of the lease. Defendant makes a reasonable argument that the landlord was not entitled to rent for the balance of the lease term because the landlord subsequently re-rented the premises and then sold it within two years. Defendant also asserts that the sums plaintiff has collected to date should have significantly reduced, if not satisfied, the balance due on the judgment, even if the judgment amount was proper in the first instance. Neither of these arguments should be precluded simply because defendant remained in the property for six months in 1991 without paying rent. Defendant's failure to pay rent in the first instance gave the landlord grounds for eviction and a money judgment, but has no bearing on defendant's claim that the landlord failed to mitigate its damages, and failed to properly account for the amounts already collected against the default judgment.

The trial court relied on comments in our 2002 opinion, that defendant's unclean hands were a basis to deny him relief with regard to his bankruptcy discharge. There we denied him relief, however, pursuant to a specific statute, N.J.S.A. 2A:16-49.1, which is designed to cancel judgments after discharges from bankruptcy. MMU of N.Y. v. Grieser, supra, slip op. at 7.

Though defendant's unclean hands were related to his claim for discharge under N.J.S.A. 2A:16-49.1, they are unrelated to the claim he now seeks leave to assert, that the default judgment should be vacated, or its remaining balance reduced, because the amount of the default judgment was incorrect, or alternatively, has been satisfied. Thus, the trial court's reasons for precluding defendant from filing a motion to substantively challenge the default judgment are inadequate.

A litigant should only be precluded from access to the courts in rare circumstances. Rosenblum v. Borough of Closter, 333 N.J. Super. 385, 389-90 (App. Div. 2000). In Rosenblum, we explained that to preclude a litigant from access to the court after the litigant has demonstrated a pattern of frivolous litigation, the assignment judge "must be assured that more traditional sanctions will not protect against frivolous litigation and must review the new complaint to be assured that a meritorious claim is not suppressed." Id. at 396. The trial court here did not explain why traditional sanctions would be inadequate in protecting the court's and the plaintiff's interests, nor did he review the motion to determine if it had substantive merit.

Defendant now has counsel, who has made reasonable arguments in challenging the underlying default judgment and the current amount due. Under the circumstances, defendant should not have been precluded from filing his motion to substantively challenge the default judgment and the balance due on that judgment.*fn2

Reversed and remanded for further proceedings consistent with this opinion.

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