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Four Felds, Inc. v. North Grove House

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


September 23, 2008

THE FOUR FELDS, INC. D/B/A L. EPSTEIN HARDWARE COMPANY, PLAINTIFF-APPELLANT,
v.
NORTH GROVE HOUSE, LLC, NEW YORK COMMUNITY BANK, MADISON TITLE AGENCY, LLC, STEWART TITLE GUARANTY COMPANY, VICTOR WEISS, DEFENDANTS-RESPONDENTS, AND JONI PROPERTIES, LLC, JOSEPH F. SPIEZIO, III, ORITE VAKNIN, SIMON KLEIN, SUMMIT TRANSPORT CORP., RANDY GARTH, AND SILVA'S MECHANICAL SERVICES, INC., DEFENDANTS.

On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, Docket No. C-378-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued September 8, 2008

Before Judges Lisa, Reisner and Alvarez.

Plaintiff, The Four Felds, Inc., appeals from a Chancery Division judgment dismissing its complaint for failure to state a claim for which relief can be granted, see R. 4:6-2(e), and because the claim was time-barred under the provisions of the Construction Lien Law, N.J.S.A. 2A:44A-1 to -38. We affirm.

Plaintiff is in the hardware business and furnished materials to the purported owners of an apartment building at 106 North Grove Street in East Orange. Plaintiff had apparently been misled concerning ownership of the building when it extended credit for the materials. When default occurred, plaintiff learned the true identity of the owner. At that time, plaintiff recorded a construction lien claim against the property and, to perfect the claim, timely filed a Law Division action. Plaintiff obtained judgment on February 8, 2002, which provided that, as of March 21, 2001, plaintiff possessed a valid construction lien claim and equitable lien against the property in the principal amount of $8335.49. Plaintiff docketed the judgment.

Notwithstanding plaintiff's recorded lien, the owner of the property transferred title to another entity on September 17, 2002 for $1,415,000, without addressing plaintiff's lien. The new owner was informed of plaintiff's lien prior to its purchase, but did not pay it. On May 22, 2003, the new owner transferred title to a related entity for no consideration. On November 9, 2005, the related entity transferred the property to another related entity, defendant North Grove House, LLC, for nominal consideration.

In connection with this transfer, North Grove House, LLC gave a mortgage to defendant New York Community Bank (Bank) in the amount of $2,650,000. Defendant Madison Title Agency, LLC (Madison) evidently conducted a title search in connection with this transaction and failed to discover plaintiff's recorded judgment lien. Defendant Stewart Title Guaranty Company (Stewart) issued title insurance policies to North Grove House, LLC and the Bank.

In late January 2006, upon learning of this transaction, plaintiff contacted North Grove House, LLC and the Bank, demanding that they file claims with their title insurers. Stewart and Madison initially refused to address plaintiff's concerns, but then attempted to settle the matter with plaintiff. The attempt was unsuccessful. Although it appears that the title companies offered to pay the full principal amount together with post-judgment interest, plaintiff demanded more.

On December 4, 2006, plaintiff filed a two-count complaint in the Chancery Division to "determine [the] extent and priority of [the] construction lien and to foreclose same." Plaintiff sought equitable and monetary relief. It alleged fraudulent procurement of goods and services. It alleged that various defendants deprived it of the benefits of the Construction Lien Law. More particularly, plaintiff alleged a violation of N.J.S.A. 2A:44A-36, which provides that a "person who fraudulently deprives a person entitled to the benefits of this act shall be liable to that person for any damages resulting therefrom." Plaintiff requested monetary damages in the principal amount of the perfected and recorded construction and equitable lien, plus the accrued default contractual-rate interest, attorney's fees, costs, and treble or punitive damages. Plaintiff also requested that the court refer the record of the action to the Essex County Prosecutor and the New Jersey Attorney General "for investigation as to whether a criminal act was committed by defendants."

In lieu of filing an answer, the Bank, Madison and Stewart filed motions to dismiss the complaint pursuant to Rule 4:6- 2(e), on the ground that it failed to state a claim for which relief could be granted. On June 19, 2007, Judge Levy issued a written decision granting defendants' motions and dismissing the complaint in its entirety with prejudice. He ordered defendants to pay the principal amount plus post-judgment interest as allowed by Rule 4:42-11 and costs to the clerk of the court, upon receipt of which plaintiff would be required to discharge its lien and the court would order satisfaction of the judgment to be entered of record. Plaintiff's subsequent motion for reconsideration was denied.

The primary basis for dismissal was that plaintiff's effort to obtain enhanced damages over the amount of its existing lien was time-barred under the one-year limitation period provided in N.J.S.A. 2A:44A-14. The judge reasoned as follows:

That statute required Four Felds to "establish" its lien claim within one year of the date of the last provision of work, services, material or equipment. Indeed, it provides that a claimant "shall forfeit all rights to enforce the lien," if the claimant fails to bring an action to establish it within that year. Four Felds' complaint, filed on December 4, 2006, is "TO DETERMINE EXTENT AND PRIORITY OF CONSTRUCTION AND EQUITABLE LIEN AND TO FORECLOSE SAME." Determining the extent and priority of a construction lien is the same as establishing it. Clearly, Four Felds is out of time to do so. The fact that the claim was previously established within time does not give Four Felds the right to increase the lien and re-establish it following the expiration of the one-year deadline.

Alternatively, the judge determined that plaintiff had not set out a cause of action for fraud with respect to the Bank because, as conceded by plaintiff's counsel, the complaint contained no specific allegations of fraud against the Bank. With regard to the other defendants, the judge concluded that they were under no legal duty to satisfy outstanding liens on a property upon its conveyance. On the contrary, when land is conveyed at a private sale, valid liens that are not satisfied remain valid and subject to execution by the lien holder. See New Brunswick Sav. Bank v. Markouski, 123 N.J. 402, 412 (1991). Relying on that authority, Judge Levy pointed out that the ongoing encumbrance on the land, which carries with it the right of execution, is what gives the judgment lien its value. See id. at 423. Thus, the judge concluded that any purchaser or creditor obtaining an interest in the property after plaintiff's lien was recorded would be subordinate to plaintiff's interest. As a result, plaintiff's "lien is protected and the ability to collect on it has not been impaired by any of the defendants."

The judge further noted that plaintiff failed to provide any legal authority for its argument that there is any legal duty owed to a creditor to pay off liens when land is transferred at a private sale. Although it is common practice to do so in order to clear title to the new owner and assure first priority status to any new lender, there is no legal duty on the purchaser, lender, or title insurers to satisfy existing liens.

The judge further found that plaintiff's claim of common law fraud was untenable because defendants breached no duty to plaintiff and plaintiff suffered no damages. See Banco Popular N. Am. v. Gandi, 184 N.J. 161, 173-75 (2005) (holding that the hallmark elements of common law fraud are misrepresentation, reliance and resulting damages, and that no separate, amorphous claim for creditor fraud exists in New Jersey). Therefore, even if the complaint alleged fraudulent conduct with respect to any defendants with sufficient specificity, plaintiff's reliance on N.J.S.A. 2A:44A-36 was unavailing because a defendant can only be liable under that section for fraudulently depriving an entity entitled to the benefits of the Construction Lien Law "for any damages resulting therefrom." Plaintiff has not suffered any damages because its lien remains in full force and effect.

The judge's order for payment by defendants into court and satisfaction and discharge of plaintiff's lien and judgment was made pursuant to Rule 4:48-3(a). On appeal, plaintiff argues that the judge erred in applying this rule, contending that the correct authority for satisfaction of a construction lien is contained in the Construction Lien Law, specifically N.J.S.A. 2A:44A-33(a). We find no error in this regard. We note that the several bases authorized by that section for the discharge of a lien claim include "[p]ursuant to an order of discharge by the court." N.J.S.A. 2A:44A-33(a)(3). That is what was done here.

On appeal, plaintiff argues:

POINT ONE

N.J.S.A. 2A:44A-33(a) (AND NOT RULES 4:48 AND 4:57) GOVERNS THE DISCHARGE, EXTINGUISHMENT AND RELEASE OF A PRIOR ESTABLISHED AND RECORDED CONSTRUCTION AND EQUITABLE LIEN ON A CERTAIN APARTMENT BUILDING

POINT TWO

A SENIOR EQUITABLE AND CONSTRUCTION LIEN IN THE AMOUNT OF ALL PLAINTIFF'S PRE AND POST DECLARATORY PERFECTION ORDER COMPENSATORY AND PUNITIVE DAMAGES, INCLUDING REASONABLE COSTS OF COLLECTION, SHOULD BE IMPOSED IN PLAINTIFF'S FAVOR AGAINST THE EAST ORANGE APARTMENT BUILDING

POINT THREE

VIOLATION OF A STATUTORY DUTY IS UNCONSCIONABLE COMMERCIAL BEHAVIOR JUSTIFYING A DETERRENT MULTIPLIER AND OTHER EQUITABLE REMEDIES

POINT FOUR

DEFENDANTS CROSSED THE BOUNDARIES OF ACCEPTABLE LEGAL ADVOCACY THEREBY FURTHER DAMAGING PLAINTIFF

We have already addressed Points One and Two, and reject plaintiff's arguments for the same reasons as expressed by Judge Levy. Points Three and Four lack sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We affirm substantially for the reasons expressed by Judge Levy in his well-reasoned written decision of June 19, 2007.

Affirmed.

20080923

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