April 2, 2009
GFS/MORRISTOWN LIMITED PARTNERSHIP, F/K/A BALCOR/ MORRISTOWN, L.P., PLAINTIFF-RESPONDENT,
VECTOR WHIPPANY ASSOCIATES, DEFENDANT/THIRD-PARTY PLAINTIFF-APPELLANT,
BALCOR INTERNATIONAL REALTY COMPANY, F/K/A BALCOR/SHERSON LEHMAN INTERNATIONAL REALTY COMPANY, AN ILLINOIS CORPORATION, BALCOR MANAGEMENT SERVICES, INC., AND THE BALCOR COMPANY HOLDINGS, INC., A DELAWARE CORPORATION, THIRD-PARTY DEFENDANTS-RESPONDENTS, AND GOODMAN FINANCIAL SERVICES, INC., A WASHINGTON CORPORATION, THIRD-PARTY DEFENDANTSRESPONDENTS/FOURTH-PARTY PLAINTIFF,
SCHINDLER ELEVATOR CORP. AND NICHOLAS JACANGELO, FOURTH-PARTY DEFENDANTS, AND WILLIAM LENTINI AND JOSEPH LENTINI, FOURTH-PARTY DEFENDANTS/ FIFTH-PARTY PLAINTIFFS,
WESTINGHOUSE ELECTRIC CORP. AND SCHINDLER ELEVATOR CORP., FIFTH-PARTY DEFENDANTS.
VECTOR WHIPPANY ASSOCIATES, PLAINTIFF,
MISAWA HOMES CO., LTD, TAO INTERNATIONAL CO., LTD, TAO INTERNATIONAL AMERICA, INC., ZENRO AMEMIYA, INDIVIDUALLY AND AS PRESIDENT OF TAO INTERNATIONAL AMERICA, INC., AND MASARU HANAOKA, INDIVIDUALLY AND AS VICE CHIEF OF TAO INTERNATIONAL CO., LTD., DEFENDANTS.
VECTOR WHIPPANY ASSOCIATES, PLAINTIFF,
WESTINGHOUSE ELECTRIC CORP. AND SCHINDLER ELEVATOR CORP., DEFENDANTS.
On appeal from the Superior Court of New Jersey, Chancery Division, Morris County, Docket No. F-3754-94 and Law Division, Morris County, Docket Nos. L-3373-94 and L-3911-94.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued February 25, 2009
Before Judges Rodríguez, Waugh and Newman.
Defendant/third party plaintiff/cross-respondent, Vector Whippany Associates (Vector) appeals from the order denying relief from a foreclosure judgment under Rule 4:50-1 and challenges the sheriff's sale of the foreclosed property under Rule 4:65. This appeal was heard back to back with Docket No. A-1370-06T3 which addresses the foreclosure action itself and the resulting foreclosure judgment.
We need not recapitulate the facts in detail. Suffice it to say, the property, a commercial office building known as 20 Whippany Road in Morristown, was in foreclosure. Plaintiff-respondent/cross-appellant, GFS/Morristown Limited Partnership, f/k/a Balcor/Morristown L.P. (GFS) held a $27,000,000 mortgage on the property, and including the mortgage amount, had a foreclosure judgment in the amount of $78,856,655.45. The fair market value of the property was estimated to be approximately $18,000,000 in 2006, considerably less than the amount of the mortgage alone. No other bidders participated in the sheriff's sale on May 24, 2007, where the property was acquired by GFS for $100. The sheriff's sale was confirmed by the trial court which ordered the sheriff to deliver a deed to the property on June 15, 2007.
In this appeal, Vector (alleges that the sale price was unconscionably low) and seeks vacation of the foreclosure sale and the deed of conveyance because GFS was the sole bidder. We now affirm.
In ruling on the motion for relief from the judgment under Rule 4:50-1, Judge Langlois who was not the judge that entered the foreclosure judgment, stated:
Th[e] rule is clear that the trial court does not have jurisdiction to modify a judgment or a judgment amount absent request by the appellate division initially by motion for direction of this Court to in some way consider, modify or vacate that order.
That application has not been made. This court does not have jurisdiction under Rule 4:50-1 to in any way modify the judgment, vacate that judgment, or to consider reasons to vacate that judgment absent the appellate division direction to this court to do so.
Vector, since the date of a final judgment, has been on notice that any issues regarding th[e] amount are appealable issues and have to be addressed in the appellate division.
There's no mistake, there's no fraud, there's no manifest error, there's no interest of justice under Rule 4:50-1 that otherwise should not be brought to the appellate division either by issues on appeal and/or by motion to amend their appeal to add to their brief and/or to have this court be directed to consider those issues separately from the appellate division's control and supervision.
The trial court found that there was "no mistake, surprise, fraud or other interest of justice even if this Court went to Rule 4:50-1."
With regard to the sheriff's sale, Vector asserted that the sales price was grossly inadequate and there was a lack of competitive bidding due to the large amount of the foreclosure judgment. Vector claims that the $45,000,000 in interest should not have been included, and that Vector should have been credited with the full amount of rent GFS should have collected from Schindler pursuant to the original lease. Vector insists that this court exercise its original jurisdiction to reduce the judgment amount by some $58,000,000, set aside the sheriff's sale and deed to GFS and order a new sheriff's sale.
On this issue, Judge Langlois found:
... [t]he evidence relating to the judgment amount was fully addressed at trial, based upon the testimony and use of the exhibit, although not in evidence, of existence [sic] to Judge MacKenzie in determining the principal amount, and interest, of liquidated damages for purpose of entering a very specific judgment and a very specific amount.
If [Vector] wants to litigate the judgment amount, whether at interest or otherwise, it has already filed an Appellate brief. The opposition says it does not challenge the judgment amount. [It] [h]as failed in five applications to prevent the sale through a stay and failed to raise any other issue relating to that judgment on appeal. It is inappropriate and lacks any jurisdictional authority to review it now.
As to Rule 4:65, valid grounds for an objection to the sale include fraud, accident, surprise, irregularity or impropriety in the sale itself. There are no issues raised as to the notice of the sale..., it was sufficient, and indeed Vector was aware of the sale and was present, and no question has been raised in this Court's mind that would in any way question the validity of the notice. And as to the sale price itself, no hearing is needed otherwise..... [T]here is no fraud, there is no accident, there's no surprise, there's no irregularity, and there's no impropriety.
[T]he fact that there's no other bidders are [sic] not sufficient absent further proofs for the proposition that the sale itself should be vacated.
On appeal, Vector raises the following issues for our consideration:
POINT I: THE CHANCERY DIVISION HAD JURISDICTION TO CONDUCT A HEARING UPON VECTOR'S OBJECTIONS TO THE SHERIFF'S SALE TOGETHER WITH VECTOR'S COMPANION APPLICATION FOR RELIEF FROM JUDGMENT.
A. STANDARD OF REVIEW.
B. VECTOR'S APPLICATION FOR RELIEF WAS PROPERLY BEFORE THE TRIAL COURT.
C. MANIFEST ERROR WAS SHOWN.
D. THE CHANCERY DIVISION HAD JURISDICTION. POINT II: THE FINAL JUDGMENT OF FORECLOSURE AND THE FORECLOSURE SALE MUST BE SET ASIDE AS OPPRESSIVE BECAUSE THE SALES PRICE WAS GROSSLY INADEQUATE, WHICH INADEQUACY WAS CAUSED BY MANIFEST ERRORS, IRREGULARITIES AND MISTAKES IN THE JUDGMENT THAT OVERINFLATED THE UPSET PRICE AND PREVENTED ANY COMPETITIVE BIDDING.
A. THE UPSET PRICE WAS GROSSLY AND ERRONEOUSLY OVERINFLATED AND DESTROYED ALL COMPETITIVE BIDDING.
B. THE GROSSLY INFLATED AND OPPRESSIVE UPSET PRICE WAS THE RESULT OF SUBSTANTIAL MANIFEST ERRORS ON THE FACE OF THE JUDGMENT.
1. THE JUDGMENT ERRONEOUSLY INCLUDES LATE CHARGES ACCRUING AFTER THE FORECLOSURE ACTION WAS COMMENCED.
2. LIQUIDATED DAMAGES SHOULD NOT HAVE BEEN INCLUDED IN THE FINAL JUDGMENT OF FORECLOSURE SINCE GFS SUSTAINED NO COGNIZABLE INJURY OR DAMAGES.
3. VECTOR IS ENTITLED TO A CREDIT FOR THE FULL AMOUNT OF RENT GFS SHOULD HAVE OBTAINED FROM SCHINDLER.
4. THE "STATED INTEREST" AND "INTEREST ON ADDITIONAL INTEREST" CHARGES ARE UNREASONABLE.
POINT III: THIS COURT SHOULD EXERCISE ORIGINAL JURISDICTION TO CORRECT THE MANIFEST ERROR OF THE FIRST CHANCERY JUDGE TO THE EXTENT NECESSARY AND TO SET ASIDE THE OPPRESSIVE SHERIFF'S SALE.
In Point I, Vector contends that the motion court erred in concluding that, pursuant to Rule 2:9-1(a), it did not have jurisdiction to hear Vector's Rule 4:50-1 motion seeking to vacate the judgment of foreclosure based on manifest error. In its motion for relief from judgment, Vector sought to set aside the foreclosure judgment amount on the ground that the amount was "incorrect and unconscionable."
Generally, the supervision and control of the proceedings on appeal is in this court from the time the appeal is taken.
R. 2:9-1(a). The trial court, however, has continuing jurisdiction to enforce judgments and orders. Ibid. The effect of the filing of a notice of appeal is to deprive the trial court of jurisdiction to act further in the matter unless directed to do so by this court. Rolnick v. Rolnick, 262 N.J. Super. 343, 365 (App. Div. 1993).
This Rule 4:50-1 motion was not an action to enforce a judgment or an order. Rule 2:9-1(a) makes no exception to the general rule. As a consequence, the trial court, as it correctly determined, lacked jurisdiction to consider Vector's Rule 4:50-1 challenge.
Moreover, even if the trial court had jurisdiction to entertain the motion despite the pending appeal in the companion case, Vector's Rule 4:50-1 motion would have been denied. Under Rule 4:50-1(a), a court may enter an order granting relief from judgment, among other reasons, because of "mistake." Such a motion is addressed to the sound discretion of the trial court, guided by equitable principles. F.B. v. A.L.G., 176 N.J. 201, 207 (2003).
Mistake, as encompassed by this subsection, does not include trial error. Hodgson v. Applegate, 31 N.J. 29, 36 (1959). "[E]rror on the face of the record is not the same thing as trial error." Id. at 38. Rather, trial errors requiring reference to the record are seldom manifest errors not open to controversy, the type of mistake envisioned by the relief-from-judgment rule. Id. at 40. In addition, permitting review of trial errors in the trial court up to one year under Rule 4:50-2 would defeat the forty-five-day time limitation for the filing of a notice of appeal. Id. at 37. Nor do trial errors ever justify relief under Rule 4:50-1(f), any other reason justifying relief, where the motion may be brought beyond one year. Id. at 40-41.
The purpose of a foreclosure action is to determine the right to foreclose and the amount due on the mortgage. Scheerer v. Lippman & Lowy, 125 N.J. Eq. 93 (E. & A. 1939); Central Penn Nat'l Bank v. Stonebridge, Ltd., 185 N.J. Super. 289, 302 (Ch. Div. 1982). A mortgage foreclosure suit gives the lender the right to collect the amount due only from the land subject to the mortgage. First Union Nat'l Bank v. Penn Salem Marina, Inc., 383 N.J. Super. 562, 570 (App. Div. 2006), rev'd on other grounds, 190 N.J. 342 (2007). The lender may then seek to make up any deficiency against the debtor's assets other than that subject to the lien of the mortgage. Ibid. "A foreclosure judgment is res judicata as to the amount of the unpaid debt secured by the mortgage, but is not res judicata as to [a] defendant's liability for any deficiency." Central Penn Nat'l Bank, supra, 185 N.J. Super. at 302 (internal citations omitted); 30A New Jersey Practice, Law of Mortgages, §§ 39.4 at 561 and 39.21 at 617 (Myron C. Weinstein) (2d ed. 2000) (hereinafter Weinsstein). Of course, no deficiency is involved here because the mortgage funds were a non-recourse loan, limiting the mortgagee to going only against the property.
Vector maintains that the judgment amount did not account for credits to which it was entitled. Vector contends the errors in the judgment amount constitutes manifest error, not open to controversy as: (1) late charges imposed after the foreclosure action was commenced, (2) liquidated damages, (3) failure to give credit for rent GFS should have obtained from Schindler under the Lease Agreement, and (4) default interest accruing on the accelerated debt. Except for the rent under the Lease Agreement with Schindler under (3), which is raised under the breach of the lease in Point I of the appeal under Docket No. A-1370-06T3, none of these other errors are raised in the direct appeal. Moreover, they are not calculations that can be determined on the face of the judgment. Put another way, they are not mathematical errors that are subject to correction under Rule 4:50-1. See DiPietro v. DiPietro, 193 N.J. Super. 533, 540 (App. Div. 1984). The referencing of these alleged errors require delving into the trial record and evaluating the testimony setting forth these calculations based on the loan documents. Nonetheless, as noted in Hodgson, these purported discrepancies are not the types of mistakes or correctable errors contemplated by Rule 4:50-1. Thus, even if the trial court had jurisdiction, the type of errors alleged were not subject to Rule 4:50-1 consideration.
In Points II and III, Vector maintains that the sheriff's sale should be set aside because the sale price was grossly inadequate, and there was a lack of competitive bidding due to the large award in the foreclosure judgment. Specifically, Vector claims that the judgment should not have included the approximately $45,000,000 in interest, and that Vector should have been credited with the full amount of rent GFS should have collected from Schindler pursuant to the original lease. Vector also asks this court to exercise its original jurisdiction to reduce the award by some $58,000,000.
The Chancery Division has the authority to set aside a sheriff's sale and order a resale of the property in the exercise of its discretion, based on considerations of equity and justice. First Trust Nat'l Assoc. v. Merola, 319 N.J.
Super. 44, 49 (App. Div. 1999). A judicial sale may be set aside for fraud, accident, surprise, mistake, irregularities in the conduct of the sale, or for other equitable considerations. Id. at 50. However, inadequacy of price is not sufficient alone to justify such equitable relief, unless the price is so inadequate as to support an inference of fraud, or to shock the judgment and conscience. Crane v. Bielski, 15 N.J. 342, 348 (1954); Karel v. Davis, 122 N.J. Eq. 526, 530 (E. & A. 1937). Public policy dictates that the power to set aside a foreclosure sale should be exercised sparingly and only when it is necessary for cogent reasons to correct a plain injustice or injury. Karel, supra, 122 N.J. Eq. at 529; East Jersey Sav. & Loan Ass'n. v. Shatto, 226 N.J. Super. 473, 476 (Ch. Div. 1987). The burden of proof is on the objector to show why the sale should be set aside. First Trust Nat'l Assoc., supra, 319 N.J. Super. at 51. The sale will be set aside more readily when the mortgagee is the purchaser. 30 New Jersey Practice, Law of Mortgages, § 365 at 314-15 (Roger A. Cunningham and Saul Tischlea) (1975).
During times of great economic distress, such as the depression, inadequacy of sales price is more likely to move a court to annul a foreclosure sale. 79-83 Thirteenth Ave., Ltd. V. DeMarco, 44 N.J. 525, 534-35 (1965); Weinstein, supra, at § 35.17. In Federal Title & Mortgage Guar. Co. v. Lowenstein, 113 N.J. Eq. 200, 202 (Ch. 1933), there was only one bidder at the foreclosure sale, and the mortgaged premises was sold to that bidder for $100, even though the stipulated value of the property was $27,500 and the amount due on the mortgage was nearly $42,000. Citing the ongoing economic depression, the court held that the mortgagee's title would not become absolute until it stipulated that $27,500 was the fair value of the property and credited that amount to the outstanding mortgage. Id. at 209. The economic situation at the time the foreclosure judgment in this matter was entered was in no way comparable to that of the 1930s.
Moreover, Vector's claim that the upset price of $81,595,232.13*fn1 at the time of the sheriff's sale drove away prospective bidders does not withstand scrutiny. The upset price usually refers to the price beyond which the lender or mortgagee in the case will not bid. Vector points out that the practice of announcing an upset price at the time of the sheriff's sale varies throughout the State and the need for uniformity is desirable, acknowledging it is not illegal in this State to fix an upset price.
We do not deem it appropriate on the facts presented here to address whether an upset price should or should not be announced at a sheriff's sale and express no view on the subject. We leave the question for another day because the upset price was not critical to the competitive bidding issue raised. Here, the mortgage amount of $27,000,000 far exceeded the fair market value of the property. Thus, it was highly unlikely any prospective bidder was going to bid on the property where the mortgagee was present at the sheriff's sale in a position to bid. Put another way, the only likely bidder under this scenario was the mortgagee, which is not an unusual prospect to encounter at a sheriff's sale. We discern no irregularity in the sheriff's sale that calls for relief by this court.
Lastly, we do not see where the equities flow in favor of Vector that would require any relief. Vector acquired the mortgaged premises in 1986 for $14,500,000, contributing $2,400,000 of the purchase price. Westinghouse Electric, the sole tenant, leased the property in 1986, and spent $8,000,000 in improvements to its leasehold. In 1988, Westinghouse Electric sold its elevator division to Schindler Elevator Corp., which then became the sole occupant of the building. In June 1987 Vector refinanced the mortgaged premises through a non-recourse loan with Balcor for $27,000,000. The loan proceeds paid off all debts on the property, reimbursed Vector and all of its partners and limited partners for all of their investments in the mortgaged premises, and provided for the disbursement of $6,000,000 to the limited partners of Vector, representing their equity in the property.
Subsequent to 1987, Vector did not make any investment in the mortgaged premises. Taxes and all expenses were paid by Schindler under the triple net lease. Vector received management fees and profits from the cash flow of the mortgaged premises, and was able to take advantage of the tax benefits of depreciating the property. On the other hand, Balcor had $27,000,000 in cash invested in the mortgaged premises, Westinghouse Electric had spent $8,000,000 in physical improvements to the property, and Vector had nothing invested in the mortgaged premises. Finally, Vector was the recipient of a non-recourse loan which meant that Vector and its partners had no liability for any deficiency under the foreclosure judgment. GFS's sole remedy was against the property itself. Equitable considerations do not warrant intervention by this court.