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Heritage Estates, LLC v. Bel Air Holdings

August 24, 2010

HERITAGE ESTATES, LLC, AS SUCCESSOR IN INTEREST TO FIRST BANK AND TRUST COMPANY OF ILLINOIS, AN ILLINOIS CORPORATION, PLAINTIFF-RESPONDENT,
v.
BEL AIR HOLDINGS, L.L.C., A NEW JERSEY LIMITED LIABILITY COMPANY, DEFENDANT-RESPONDENT, AND SHERIF H. EL-FAR, P.E., D/B/A ALLIED ENGINEERING ASSOCIATES, CAMBRIDGE SECURITY SERVICES CORP., AND WATOTO WAZURI, INC., T/A WATOTO WAZURI, DEFENDANTS, AND TITAN MANAGEMENT, L.P., DEFENDANT/INTERVENOR-APPELLANT.
TITAN MANAGEMENT, L.P., PLAINTIFF-APPELLANT, AND TITAN FUNDING, L.P., ELLINGTON MANAGEMENT GROUP, L.L.C., EMP WHOLE LOAN, I, L.L.C., TITAN REALTY 1998-A, LLC, AND I.O.J., L.L.C., PLAINTIFFS,
v.
JAMES J. LICATA, FIRST CONNECTICUT CONSULTING GROUP, INC., PIETER J. DE JONG, FULTON'S LANDING CORP., PETER MOCCO, LORRAINE MOCCO, FIRST CONNECTICUT HOLDING GROUP, L.L.C. XXVII, FIRST CONNECTICUT HOLDING GROUP, L.L.C. XXIV, FIRST CONNECTICUT HOPE VI, L.L.C., FIRST CONNECTICUT SCATTERED SITES, L.L.C., FIRST CONNECTICUT HOLDING GROUP, L.L.C. I, ALLAN C. WEBBER, TRUSTEE, FIRST CONNECTICUT HOLDING CORPORATION XIII, FIRST CONNECTICUT HOLDING CORPORATION XIV, FIRST CONNECTICUT HOLDING CORPORATION XV, FIRST CONNECTICUT HOLDING CORPORATION XVI, FIRST CONNECTICUT HOLDING CORPORATION XVII, FIRST CONNECTICUT HOLDING CORPORATION XVIII, FIRST CONNECTICUT HOLDING CORPORATION XIX, FIRST CONNECTICUT HOLDING CORPORATION XXI, FIRST CONNECTICUT HOLDING CORPORATION XXII, FIRST CONNECTICUT HOLDING CORPORATION III, AND METROPOLITAN MANAGEMENT CO., DEFENDANTS, AND BEL AIR HOLDINGS, L.L.C., AND HERITAGE ESTATES, LLC, AS SUCCESSOR IN INTEREST TO FIRST BANK & TRUST COMPANY OF ILLINOIS, DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, F-16406-01 and C-280-98.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued April 12, 2010

Before Judges Rodríguez, Reisner and Yannotti.

This is our second review of this dispute. This matter comes back to us after a remand. The facts are convoluted. We provide a brief background for context.

In December 1996, First Connecticut Holding Group (FCHG), a limited liability corporation, controlled by James Licata as its majority stockholder, purchased a twenty-story apartment building in Newark, known as "Bel Air Tower." The property was encumbered by a $3.4 million mortgage from TransAtlantic Capital Company, L.L.C. (Transco). FCHG borrowed $2 million from appellant Titan Management, L.P. (Titan). Because the Transco note and mortgage barred junior encumbrances, the loan from Titan was secured by a negative pledge agreement (NPA), which provided that FCHG would incur no further indebtedness other than the Transco mortgage loan; FCHG would not transfer the property; and Titan would receive an escrow deed that was not to be recorded. The NPA stated on the first page: "THIS INSTRUMENT IS NOT A MORTGAGE AND DOES NOT CREATE A MORTGAGE LIEN ON THE SUBJECT PREMISES IDENTIFIED BELOW." The NPA was recorded. Simultaneously, FCHG gave Titan an undated "escrow deed" to the property to be held in case of FCHG's default.

In September 1998, FCHG defaulted on the Titan loan. Titan recorded the escrow deed, sued FCHG and moved to show cause to gain possession of Bel Air Tower. The application was granted and Titan took control of the property. Many of FCHG's obligations were paid off or reduced during Titan's ownership. However, FCHG moved to recover possession of the property and filed a lis pendens.

Judge Julio M. Fuentes held that the NPA was an attempt to avoid established New Jersey foreclosure procedures. Therefore, he declared the NPA unenforceable. The judge found that the NPA was "not a mortgage and created no security interest in the Premises," and Titan had "no title or current lien interest in or to the Premises." The judge held that Titan was simply "in an insecure position... and [was] proceeding like any other debt creditor in a court of law." The judge also entered the February 7, 1999 order that appointed a receiver and prohibited the parties from transferring or mortgaging the property any further.

By June 1999, Bel Air Tower's utility bills were not being paid. FCHG moved to obtain a discharge of the receiver in order to refinance the property. However, FCHG did not disclose to the judge that, as part of the refinance, the property was to be transferred to Bel Air Holdings, L.L.C. (Bel Air), a new entity controlled by Licata.

The judge granted the request. Unbeknownst to Titan, title was transferred by FCHG to Bel Air. Bel Air then obtained a $5.3 million mortgage loan from First Bank secured by a mortgage on the premises. Upon learning this, Titan filed an application to hold FCHG, its attorneys and Licata in contempt and to enjoin further transfer or encumbrance of the property. Titan also filed an action against FCHG, Licata, Bel Air and others. Titan Mgmt., L.P. v. Licata, Essex County Docket No. C-280-98. Judge Fuentes found that the transfer of title was not a violation of the order permitting the refinance but it was a violation of the NPA. The judge permitted Titan to amend the complaint to seek relief to void the transfer from FCHG to Bel Air.

In August 2001, Bel Air defaulted on the First Bank mortgage. First Bank commenced a foreclosure action. First Bank & Trust Co. of Ill. v. Bel Air Holdings, Essex County Docket No. F-16406-01 (First Bank I). Titan sought to intervene and to consolidate the foreclosure action with its own lawsuit (Docket No. C-280-98). The foreclosure action judge, a different judge, denied Titan's motion, but ordered First Bank to serve Titan with written notices pertaining to any entry of final judgment, the sheriff sale and the results of that sale, including the amount of surplus monies, if any. Titan appealed. While the appeal was pending, First Bank sold Bel Air's loan to Heritage Estates, LLC (Heritage) and assigned it the foreclosure action.

In that appeal, First Bank & Trust Co. of Ill. v Titan Mgmt., LLP, No. A-2064-01T3 (App. Div. Feb. 25, 2003) (First Bank I), we reversed the denial of the motion by Titan to intervene in a foreclosure action and to consolidate the matter with an action challenging the transfer of title to the mortgaged property to Bel Air as a fraudulent conveyance. We ordered intervention, consolidation and remanded to the General Equity Part for further proceedings.

On remand, following consolidation, Titan filed an answer to the foreclosure complaint with affirmative defenses contesting the validity of Bel Air's title and the mortgage. After discovery, the parties filed cross-motions for summary judgment.

In an oral opinion delivered after arguments on February 28, 2006, the judge found, as had we and the other judges, that "no sufficient grounds existed" to have the property's title revert back to FCHG or another entity. Thus, the judge held that "[t]he ...


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