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Investors Savings Bank v. Waldo Jersey City

February 17, 2011

INVESTORS SAVINGS BANK, PLAINTIFF-RESPONDENT,
v.
WALDO JERSEY CITY, LLC, POWERHOUSE LAND DEVELOPMENT, LLC AND DAVID PAZDEN, DEFENDANTS-APPELLANTS.



On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-4672-09.

The opinion of the court was delivered by: Fisher, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued December 15, 2010 - Decided

Before Judges Fisher, Simonelli and Fasciale.

The opinion of the court was delivered by FISHER, J.A.D.

In this appeal, we reverse an interlocutory order that dismissed defendants' counterclaim; the judge's ruling was based on his enforcement of a contract provision, which proclaimed the party's loan agreement to be "free from any right of setoff, counterclaim or other defense." Because this provision was not intended to extinguish defendants' claims -- only relegate them to a separate suit -- it conflicts with our rules of procedure and is, thus, unenforceable.

I

Because the counterclaim filed by defendants Waldo Jersey City, LLC, and Powerhouse Land Development, LLC, was dismissed at the pleading stage, we assume for present purposes that their allegations are true. Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989); Seidenberg v. Summit Bank, 348 N.J. Super. 243, 249-50 (App. Div. 2002).

Their allegations reveal that Waldo is the owner of property in Jersey City, and Powerhouse was an entity created to manage construction of residential condominiums on the property. Requiring financing for this multi-million dollar project, Waldo and Powerhouse (defendants) entered into discussions with plaintiff Investors Savings Bank (plaintiff).

On July 10, 2006, plaintiff issued a commitment letter, which was amended a few weeks later, agreeing to provide an initial $1,000,000 for the cost of project drawings, and then: $6,400,000 to discharge an existing lien; $25,800,000 for hard costs, including the drawings; and $2,300,000 for an interest reserve. According to defendants, plaintiff understood that if the loan was not entirely funded, they would be unable to meet their obligations and complete the project. On September 14, 2007, more than a year after the commitment, the parties entered into a loan agreement.

Defendants claim that in the year between the commitment and the loan closing, the residential real estate market in Jersey City "virtually came to a standstill." Appraisals obtained by plaintiff valued the property at approximately $25,000,000 at the time of the commitment; a second appraisal, shortly before closing, approximated its value at $16,700,000. By the time of closing, defendants had incurred more than $1,000,000 in costs on the assumption plaintiff would fully fund the loan. Plaintiff, however, provided less than $8,300,000 at closing and, according to defendants, willfully and inappropriately decided to stop further funding the loan, leaving defendants to bear costs it expected would be funded by plaintiff. In November 2008, plaintiff sought to amend the agreement in order to impose less favorable terms on defendants; plaintiff's proposal was rejected, prompting plaintiff's issuance of notices alleging technical defaults in defendants' obligations.

II

On August 21, 2009, plaintiff commenced an action seeking the foreclosure of its mortgage, and on September 22, 2009, plaintiff filed this separate action, seeking damages in the amount of the entire balance of the loan allegedly due from defendants and the personal guarantor, defendant David Pazden. Defendants filed a counterclaim, alleging, among other things, that ...


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