On appeal from Superior Court of New Jersey, Chancery Division, Essex County, Docket No. C-103-03.
The opinion of the court was delivered by: Ashrafi, J.S.C. (temporarily assigned).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Stern, Waugh and Ashrafi.
In this appeal, we consider the tort of conversion as it applies to money rather than chattels. More specifically, we consider whether defendants who received fraudulently obtained money must repay it to the rightful owner even if they had no knowledge of the fraud.
Plaintiff Chicago Title Insurance Company seeks to recoup from defendants portions of more than $22 million dollars defrauded from Lehman Brothers Bank (Lehman). The trial court granted summary judgment to plaintiff on its cause of action for conversion.
Defendants-appellants Hosea and Liddie Davis are the parents of Jamila Davis, one of the perpetrators of the fraud upon Lehman. They admit that they received $512,845 from their daughter in a five-month period and they acknowledge now that she obtained large sums of money through a scheme to defraud Lehman. But, in opposition to summary judgment, defendants asserted they had no knowledge of the fraud, and the money was either repayment of loans they had made to their daughter or Liddie Davis was only a nominal custodian with no dominion or control over most of the money she received.
We hold that exercise of dominion or control over the money constitutes conversion, unless defendants were unaware of the fraud and received the money in exchange for fair value. Each defendant has shown a disputed issue of fact as to value allegedly exchanged for a relatively small portion of the funds received from their daughter. As to the bulk of the funds, the trial court correctly granted summary judgment, concluding that defendants had converted Lehman's property and were liable to repay it. The order of summary judgment is affirmed in part, and reversed in part.
In reviewing a grant of summary judgment, an appellate court applies the same standard under Rule 4:46-2(c) that governs the trial court. See Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007). The court must "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
Here, the facts of the fraudulent scheme are not in dispute. In addition, although plaintiff alleges that Hosea and Liddie Davis must have known that their daughter obtained the money illegally, for purposes of summary judgment, we accept as true defendants' assertion that they did not know.
Beginning in April 2002, Jamila Davis and Brenda Rickard, who were real estate investment consultants, conspired with attorney Daniel Ellis and a number of mortgage brokers and real estate appraisers to obtain millions of dollars through fraudulent mortgage applications. The conspirators would target a multi-million dollar house for sale and recruit a person to act as a sham buyer. They would offer the sham buyer a one-time fee to participate in the scheme, for example, $45,000 or $50,000. The conspirators would then enter into a contract to purchase the house in the sham buyer's name.
Unbeknownst to the innocent sellers, the conspirators would forge the sellers' signatures on a second, false contract at a much higher price for the house, sometimes double the true contract price. For example, one house that sold for $1,500,000 was purported on the false contract to have a price of $3,200,000. Another sold for $2,800,000, but the false contract showed a price of $5,500,000.
A mortgage broker would prepare and submit a false mortgage application in the name of the sham buyer using identification and other information provided by the buyer but adding false income, assets, and other credit information. Appraisers would present false appraisals of the property. Relying on the false documents, Lehman would approve mortgage loans in amounts greater than the actual prices of the houses. For example, on the two houses referenced in the previous paragraph, Lehman lent $2,240,000 on the $1,500,000 house, and $3,575,000 on the $2,800,000 house.
Daniel Ellis would act as the closing attorney, receiving wire transfer of the Lehman mortgage funds. The fraudulently obtained loan proceeds would then be distributed as required to close the sale, with the excess amounts being shared among the conspirators. The sham buyer would not take occupancy or make payments on the Lehman loan, although the conspirators sometimes made installment payments to keep the scheme concealed for some months.
From April to December 2002, Jamila Davis and her co-conspirators completed eight such fraudulent transactions for houses in Bergen County. Lehman lent $22,295,000 in mortgage funds for the eight houses. For her part in the conspiracy, Jamila Davis received more than $2,800,000 of the fraudulently obtained funds. Typically, her ill-gotten gains were first issued to a business entity owned and controlled by her, including Diamond Star Financial, Inc. or Jamila Davis Realty, and then diverted to her personal use.
Eventually, nine persons pleaded guilty pursuant to plea agreements with the federal government. Jamila Davis and Brenda Rickard went to trial and were convicted on seven counts of fraud. Jamila Davis was sentenced to twelve years in federal prison.
At the time the fraud against Lehman began, in April 2002, Jamila Davis and her mother, defendant Liddie Davis, opened a bank account at Citibank in New York City under the name "Liddie M. Davis ITF [in trust for] Jamila Davis." On June 25, 2002, Jamila Davis deposited $98,500 into the account. On August 23, 2002, she issued a check to Liddie Davis for $155,000, which Liddie Davis deposited into the Citibank account. Defendants do not dispute that the source of these deposits was the fraudulently obtained Lehman loan proceeds.
In December 2005, Lehman filed amendments to a complaint in intervention in the Superior Court alleging that Liddie Davis had converted Lehman's funds, including the two large deposits into the Citibank account. In February 2008, plaintiff Chicago Title Insurance Company was subrogated to Lehman's claims after settling with Lehman. At the same time, cross-motions for summary judgment were filed by Chicago Title and defendants.
In the four-page affidavit Liddie Davis filed as part of the summary judgment record, she said that the Citibank account "was administered solely by my daughter, Jamila Davis, in the furtherance of her business interests." She declared further that "my name was on it solely as a means to provide access to it in the event my daughter was unable to access it due to some disability or unavailability."
The Citibank statements show that on July 29 and August 20, 2002, withdrawals totaling $55,419.62 were made from the account. Liddie Davis says in her affidavit that Jamila Davis withdrew the money. It appears from the documents that Jamila Davis took $12,500 of the amount withdrawn in her own name and had bank checks issued for the balance of almost $43,000 to cure a serious delinquency of another mortgage loan in her own name, which was nine payments in arrears and in the hands of an attorney for collection.
Except for one other $55 transaction in October 2002, no further activity occurred on the Citibank account until spring 2003. On April 10 and again on April 14, 2003, Liddie Davis caused a wire transfer on each date of $100,000 out of the Citibank account to Diamond Star Financial, her daughter's company. It was at the same time, in April 2003, that Lehman discovered the fraud because several of the mortgages on the eight Bergen County homes were in default.
In addition to the $253,500 deposited into the Citibank account during the summer of 2002, Liddie Davis received a check from Jamila Davis on June 3, 2002, for $15,000. She says in her affidavit that this amount was "repayment of monies I had loaned my daughter from my retirement account."
Based on these factual assertions, Liddie Davis denies that she converted property of Lehman, declaring that she exercised no dominion or control over the money in the Citibank account and that the $15,000 check was repayment of a loan. The trial court rejected Liddie Davis's defense and granted summary judgment against her in the amount of $268,500 plus interest.
Plaintiff also became subrogated to Lehman's claims for conversion against Hosea Davis. The facts alleged in Hosea Davis's defense date to the summer of 2000, when he says he began lending his daughter money to buy and renovate a home at 186 Covert Street in Brooklyn, New York.
According to his affidavit in the summary judgment record, in early August 2000, Hosea Davis mortgaged a property he owned on Sumpter Street in Brooklyn to lend his daughter the funds to buy the Covert Street home for herself and her children. He has attached to his affidavit unsigned and undated copies of a mortgage and settlement statement for a loan to him from Wells Fargo Bank West in the amount of $133,000 referencing the Sumpter Street property. He says that he added some additional personal funds to the proceeds of the Wells Fargo loan and made a loan to his daughter of $140,910.33. He claims that the loan was secured by a mortgage on the Covert Street ...