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Thomas & Cheryl Koziol, Inc. v. Lasalle National Bank

March 29, 2010

THOMAS & CHERYL KOZIOL, INC., PLAINTIFF-APPELLANT,
v.
LASALLE NATIONAL BANK (AS TRUSTEE); GMAC COMMERCIAL MORTGAGE CORP.; ORIX CAPITAL MARKET, LLC; INDIVIDUALLY AND AS SUCCESSOR IN INTEREST TO BANK ONE MORTGAGE CAPITAL MARKETS, LLC; AND TO CRIIMI MAE SERVICES LIMITED PARTNERSHIP; LARIDIAN MANAGEMENT, INC.; THOMAS MESCE; CNA SURETY AND WESTERN SURETY COMPANY, DEFENDANTS-RESPONDENTS, AND KILLIAN & SALISBURY, PC, DEFENDANT.



On appeal from the Superior Court of New Jersey, Law Division, Bergen County, L-6429-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 8, 2010

Before Judges Rodríguez, Reisner and Chambers.

Plaintiff Thomas & Cheryl Koziol, Inc. (Koziol) appeals from two orders of the Law Division, dated May 12, 2006 and November 15, 2007, dismissing its complaint on motions for summary judgment. On this appeal, plaintiff contends that the Law Division erred in dismissing its complaint against the receiver and its agents and surety (receiver defendants) for lack of an expert witness; and that the court erred in dismissing its claims concerning flood insurance on grounds of res judicata and collateral estoppel. We affirm the November 15 order dismissing the complaint against the receiver defendants. We reverse the May 12 order and remand the flood insurance issues to the trial court. We will discuss the issues in separate sections of this opinion.

A. The Insurance Issue

This case has its origins in a 1998 complaint filed by LaSalle National Bank to foreclose a mortgage on an apartment building owned by Thomas & Cheryl Koziol, Inc. (Koziol). Koziol filed its answer in 1998, and thereafter the foreclosure was hotly contested as to both the issue of whether the mortgage was in default, and as to the amount due. In September 1999, while the litigation was pending, Hurricane Floyd struck New Jersey, causing flooding that damaged the apartment building. There is no dispute that Koziol had allowed the insurance on the building to lapse, and as a result LaSalle had "force placed" insurance on the building. It turned out that the force placed insurance did not cover flood damage.*fn1 However, LaSalle was able to recover a little over $128,000 from an errors and omissions (E&O) policy procured by GMAC, one of the mortgage servicers.

In the course of the foreclosure litigation, Koziol claimed that it was entitled to some or all of the proceeds of the E&O policy, in part because LaSalle and its mortgage servicers were negligent for force placing insurance that did not include flood coverage. LaSalle's stated defense was that Koziol was not entitled to the E&O proceeds because it was not the named insured on that policy. Judge Simon decided that Koziol was not entitled to the E&O policy proceeds. Her oral opinion, however, stated no rationale beyond one sentence indicating her agreement with LaSalle's position. The court entered a final judgment of foreclosure on November 7, 2001, quantifying the amount due.*fn2

On its direct appeal from the foreclosure judgment and in its petition for certification, Koziol continued to pursue its claim for approximately $103,000 in proceeds from the E&O policy. On Koziol's appeal, we rejected its claims concerning the insurance issue and affirmed the foreclosure orders and the order denying reconsideration. LaSalle Nat'l Bank v. Thomas & Cheryl Koziol, Inc., No. A-2849-01 (App. Div. Apr. 6, 2004). However, our opinion did not discuss Koziol's claims or the trial court's ruling in any detail.

That brings us to the Law Division action that gave rise to this appeal. In a complaint filed on September 14, 2005, Koziol claimed that LaSalle and its servicing agents (collectively, LaSalle) were negligent in failing to obtain flood insurance on the building. Koziol contended that in force placing insurance on the building, LaSalle undertook a duty to Koziol to obtain appropriate insurance including flood insurance. Koziol claimed that due to the lack of flood insurance, it was never reimbursed for over $200,000 worth of repairs to the building and it also lost considerable rental income.*fn3 The Law Division judge dismissed those claims, because they either were raised or could have been raised in the litigation over the amount due on the foreclosure judgment and in the 2004 appeal.

In the foreclosure action, neither party sought a plenary trial on the dispute over the amount due; instead they relied on written submissions. The relevant question is whether, during that phase of the foreclosure proceeding, Koziol either asserted, or was precluded from asserting, a claim that it was entitled to an offset for losses incurred due to LaSalle's failure to procure flood insurance, and if it asserted such a claim, whether the claim was decided.

In opposing this appeal, the LaSalle defendants contend that Koziol had an opportunity to litigate the insurance issue during the litigation before Judge Simon and on the resulting appeal from her decisions. They also contend that Koziol raised the issue in the foreclosure case and lost on the merits, and then re-raised the issue, albeit with an expanded damage claim, in the Law Division action.

In a June 1, 2007 trial brief that Koziol filed with the Law Division, Koziol represented to the court that it made the building repairs in 1999 and knew by January 14, 2000, that there was no flood insurance. The default trial began in January 2000 and ended in June 2000. Hence, prior to the end of the default trial and long prior to the litigation over the amount due, Koziol knew that it would be looking to obtain the proceeds of the E&O policy to cover its outlay for the repairs, due to LaSalle's failure to obtain flood insurance. However, Koziol contends that the E&O policy proceeds represented a sum certain, which it could claim on legal grounds without delaying the foreclosure litigation, while its claims for repair costs and rental losses were unliquidated and would have required additional discovery to adjudicate. See R. 4:7-1 (requiring a defendant to "set off a liquidated debt or demand"). The latter process would have been contrary to the desires of all parties, and the court, to bring the foreclosure litigation to a conclusion.

On this appeal, Koziol only challenges the dismissal of counts three, four, and five of its complaint, which allege breach of contract with respect to LaSalle's force placement of insurance, third-party beneficiary insurance claims, and negligence.*fn4 We conclude that the negligence and related claims Koziol seeks to assert and the accompanying damage claims (reimbursements of its costs to ...


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