On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-2374-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Carchman, Sabatino and Simonelli.
Defendants Barry Mark (Barry) and Ann Mark (Ann) appeal from a December 7, 2007 order of the Law Division entering judgment in favor of plaintiff Darlene Mauro (Darlene) for $71,937.50. That sum represented one-half of the $143,375 collectively sought by Darlene and plaintiff Louis Mauro (Louis) in their Law Division action. The order was premised on the motion judge's conclusion that Darlene was entitled to one-half of monies paid by Barry to the Internal Revenue Service (IRS)*fn1 on account of an IRS levy against Louis. We reverse. We conclude that under the unique facts presented here, Barry's payment of funds to the IRS in response to the levy was reasonable, and under federal law, he was immune from the liability imposed upon him by the order of the Law Division.
We briefly relate the relevant facts. Plaintiffs and defendants were one-time friends and neighbors. Apparently in 1994, Louis was suffering from financial problems, and Louis and Darlene's residence was the subject of a foreclosure proceeding. To assist their friends, Barry and Ann purchased the property at the foreclosure sale. Thereafter, the parties entered into a lease, signed on May 1, 1994, for the rental of the property --- plaintiffs' marital residence located at 8 Precedent Place, Manalapan. The lease provided for a base rental of $2,020 per month. The lease also granted to plaintiffs an option to repurchase the property for $404,000. Paragraph twenty-three of the lease provided that plaintiffs, as tenants, would pay certain sums in addition to the rent, ranging from $4,000 to $10,000 per month during the term of the lease. Defendants agreed to deposit these additional sums into an escrow account with a six percent interest rate. Paragraph twenty-seven of the lease, the purchase option provision, provided that in the event the balance on the escrow account reached $404,000, defendants could deed the property back to plaintiffs, and plaintiffs would be credited with the money in the escrow account as payment for the premises.
This unusual transaction did not go unnoticed as Barry subsequently became involved in an investigation by the IRS and was "accused of conspiring with Louis Mauro to hide money from the IRS" because Louis "owed back taxes."*fn2 Barry "pled guilty to a lesser charge, and spent five months in a halfway house, five months under house arrest, and one year on probation."
Thereafter, plaintiffs exercised the option contained in the lease, and they purchased the house on April 28, 2005. At the time of the closing, the escrow account, now representing the consideration for the transfer, was presumed to approximate $460,000. However, according to plaintiffs, Barry had improperly removed $143,875 from the escrow account and used it to pay the legal fees incurred in his defense of the IRS investigation. Plaintiffs filed a complaint seeking return of this amount. On October 9, 2007, at a settlement conference prior to the commencement of trial, the parties agreed to settle the escrow dispute for $125,000. The consent judgment provided that the $125,000 settlement payment was:
2. [T]o be made by certified, or bank teller or cashier's, check made payable to Louis Mauro, Darlene Mauro and Drazin and Warshaw, PC, which check is to be delivered to the offices of Drazin and Warshaw, 25 Reckless Place, Red Bank, New Jersey 07701, on or before November 9, 2007;
3. In the event that such check is not delivered to the offices of Drazin and Warshaw, PC on or before November 9, 2007, the plaintiffs may, upon serving a notice of motion on counsel for the defendants, petition the Court for judgment against the defendants in the amount of $143,875.00, plus interest . . . at the per annum rate of six percent, and running from June 1, 2001 through the date on which defendants make payment of such amount to plaintiffs.
Defendants contend that due to the previous IRS investigation and charges "[Barry] became concerned about paying money to Louis Mauro when [Barry] knew that [Louis] had a large IRS lien against him." Barry contacted the criminal attorney who had represented him in the earlier criminal proceeding, gave him a copy of the civil order of judgment, and asked for advice. Counsel advised defendant that "he would contact the IRS investigator in [the] prior matter."
The contact was made, because on October 12, 2007, Barry received an IRS Notice of Levy to collect money owed by Louis. In response to the levy, on October 17, 2007, Barry sent $125,000, the entire settlement amount, to the IRS. On October 19, 2007, plaintiffs received an envelope containing a copy of the Notice of Levy with a handwritten notation stating, "paid 10/18/07 $125,000."*fn3
On October 29, 2007, upon being notified of Barry's actions, plaintiffs' counsel wrote a letter to the IRS seeking $83,333.333, claiming that the sum represented Darlene's and the law firm's combined share of the settlement amount.
The payment to the IRS prompted plaintiffs to move in the Law Division to enter judgment seeking the entire $143,875 demanded under the original complaint. In a certification in support of the motion, counsel asserted that the payment of $125,000 had not been made in accordance with the settlement agreement and that the monies paid to the IRS included monies that rightfully belonged to Darlene and plaintiffs' counsel's law firm. Counsel also asserted, without substantiation, that his firm was entitled to $25,000 and Darlene was entitled to $50,000. The motion judge entered an order awarding Darlene $71,937.50 plus interest. The judge did not address ...