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Valley National Bank v. Tru Med Properties


July 28, 2011


On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. F-13516-10.

Per curiam.


Submitted May 17, 2011

Before Judges Carchman and Messano.

Essex Partners LLC (Essex) appeals the October 1, 2010 order denying its motion to extend the closing date for the court-ordered sale of real property. We have considered the arguments raised in light of the record and applicable legal standards. We affirm substantially for the reasons expressed by Judge Robert P. Contillo in his oral decision.

The facts and procedural history leading up to the order under review are convoluted but essentially undisputed.

The property at issue is commercial real estate located at 113 Essex Street in Maywood (the Property). On January 3, 2008, defendant Tru Med Properties LLC (Tru Med) obtained an acquisition and construction loan in the amount of $6,800,000 from the Greater Community Bank, which later merged into plaintiff, Valley National Bank (Valley). The loan agreement and note extended a line of credit that could be drawn upon over a twenty-four month period, after which the loan balance would convert into a permanent mortgage loan with a ten-year term. The maturity date of the loan was January 3, 2010.

Vyto Kab and Scott Savastano each owned fifty percent of Tru Med, which intended to use the Property as a "[s]urgical [c]enter." On December 1, 2009, Valley served Tru Med with a notice of default based upon alleged misrepresentations Savastano made regarding his financial condition. The default notice also included Valley's allegation that its interests were no longer financially secure.

That claim was based, in part, on litigation Tru Med had commenced in October 2009 against Savastano (the Tru Med litigation). Tru Med alleged Savastano had misrepresented his financial condition and failed to contribute to the ongoing expenses of the Property. Tru Med sought to compel Savastano to convey his interests to Kab, or alternatively, dissolution of Tru Med.

After the note matured, on January 5, 2010, Valley sent Tru Med another notice of default declaring that all outstanding amounts were now due. On April 8, 2010, after repeated attempts to compel Tru Med to "cure any defaults," Valley instituted this foreclosure action.

The following day, Kab filed a motion on behalf of himself and Tru Med seeking: leave to intervene in the foreclosure action; to compel the sale of the Property pendente lite pursuant to N.J.S.A. 2A:50-31; to appoint a receiver for the Property; and to compel a public auction of the Property to the highest bidder within thirty days, with a closing within thirty days thereafter, and at which Kab and Savastano could bid "either individually or on behalf of an entity in which [they owned] an entity interest." Savastano also sought leave to intervene as a defendant in the foreclosure action.

Following oral argument, on May 10, the Chancery judge granted both Kab and Savastano leave to intervene and appointed Martin Dowd, an attorney, as "receiver for the purposes of securing and managing tenants." Kab filed another motion seeking to compel Dowd to sell the Property at a public auction.*fn1

On May 19, Savastano filed opposition to Kab's motion. In his certification, Savastano accused Kab of "unclean hands," alleging Kab's true motive was his desire to purchase the Property and lease it on his own, thereby "depriv[ing] Tru Med of . . . substantial equity" and denying Dowd his court-appointed right to find suitable tenants. On May 28, despite Savastano's objections, the Chancery judge granted Kab's motion and ordered Dowd to sell the Property at a public auction. The order provided that the Property "be offered for sale . . . for the highest and best price that . . . will bring in cash"; that the auction be held within forty-five days; that the "closing . . . occur as soon as practicable"; and that Kab and Savastano be permitted to make bids on the property "individually or on behalf of an entity . . . which [they] own[]." On June 14, the judge amended her order and extended the auction date for an additional thirty days.

On June 30, Dowd filed a notice of auction and sale to be scheduled for August 10. Dowd set the "minimum purchase price" at $5.7 million, acknowledged that the property would be sold "free and clear of all liens" and listed the loans encumbering the Property at that time. The notice clearly defined the "bidding procedures" for the auction.

Before attending the auction, interested buyers first had to be designated "[q]ualified [b]idders" by supplying Dowd with their financial statements "identify[ing] the[ir] source[s] of funding." At the auction, "the highest or otherwise best offer" would be deemed the "'Successful Bid'" while the runner-up would be the "'Next Highest Bid.'" Regarding closing, the notice provided:

The Successful Bidder must close within thirty (30) days of entry of the Sale Approval Order. In the event the Successful Bidder does not close within thirty (30) days . . . through no fault of the Receiver, and the Receiver consents to extend the closing period by the Court, then said Successful Bidder shall be solely responsible for payment of any costs incurred.

In the event that the sale fails to close within the time specified in the Agreement of Sale, then the Receiver may choose at his sole discretion to name the Next Highest Bidder the Successful Bidder.

In July, Dowd advertised the sale and received "three qualified bids" from the following: Maywood Realty Associates, LLC (Maywood), for $5.7 million; Regent Real Estate Partners, LLC, for $5.7 million; and Essex, for $7.5 million. Savastano was the controlling member of Essex.

On August 10, after the three bidders supplied the necessary proof of qualification, Dowd held a public auction that was transcribed by a certified shorthand reporter. Dowd declared Essex to be the "Successful Bidder" and Maywood, whose final bid was $6.25 million, as the "Next Highest Bidder." The transcript reveals that in response to Dowd's inquiry whether Essex, "if . . . named the successful bidder[,] . . . w[ould] . . . be able to close . . . with no contingencies in 30 days," Savastano responded, "We will."

The executed agreement of sale to Essex was in the amount of $7.5 million and provided that the closing would take place "no later than thirty . . . days after the entry of the Sale Approval Order" by the court. Some confusion apparently arose regarding the required initial deposit, and Dowd filed a motion seeking to compel Essex to tender the balance of the deposit. Judge Contillo entered an order requiring Essex to tender $675,000 by August 17, or Maywood would be declared the successful bidder. Essex provided Dowd with the necessary funds on August 17, and Dowd scheduled the closing for September 16.

However, on the day before closing, Essex's counsel wrote Dowd that Savastano's partner had withdrawn, that he had "obtained a new partner and that the necessary funds would not be available until October 26." The delay was occasioned by the new partner's need to "liquidate certain securities and [allow] such funds to clear in a timely manner in the ordinary course of business." Essex agreed to "pay the real estate taxes for the period of September 16, 2010 through October 26, 2010 to alleviate any costs as a result of the postponement of the closing."

In a letter addressed to Essex's counsel dated September 16, Dowd's attorney denied the requested extension and declared Essex in default of the purchase agreement. Counsel explained that "[t]he unavailability of funds [wa]s not an acceptable ground[] for the requested extension," especially since Essex had "provide[d] evidence of the availability of sufficient funds" and had clearly stated at the auction that it was "prepared" to close "with no contingencies." Nonetheless, Dowd's counsel granted a short extension until September 23 to "consummate the closing, with time being of the essence" and further indicated that he "reserve[d] all rights as a result of the . . . default, including . . . the right to immediately proceed with the sale of the Property without further notice to the next highest bidder . . . Maywood." Essex did not close on September 23 and Dowd informed its counsel that pursuant to the notice of auction and sale, Maywood was declared the successful bidder, and he was retaining Essex's $750,000 deposit as a result of the default.

The next day, Essex filed a motion on short notice seeking an extension of the closing date. In their certifications, Savastano and his new partner, Kurt Menner, detailed their financial ability to close and the financing that had been arranged, conditioned, among other things, upon review of Menner's financial data.

On September 30, Dowd filed opposition and asked that Maywood be declared the successful bidder. In his certification, Dowd noted the seven-day extension previously granted, and Savastano's misrepresentation at the auction that the necessary funds were available. Dowd also noted that Menner's "financials" were not part of Essex's original bid. Moreover, Dowd urged the court to accept Maywood's bid since Essex's financing commitment was conditioned upon an appraisal and "satisfaction . . . [of Menner's] credit background." Dowd also expressed concern that further delay could cause the potential loss of Maywood as a purchaser.

As proof of Maywood's position, Dowd included a certification from Maywood's attorney, Brian Lenker.*fn2 Lenker claimed that Maywood was prepared to deposit $625,000 as required. Lenker also asserted that if the court granted Essex an extension, Maywood would rescind its bid, and "move on and develop another location" because it could not "continue to remain in [a] holding pattern."

On October 1, the parties appeared before Judge Contillo for oral argument on Essex's motion. In denying Essex's request, Judge Contillo stated:

The receiver's application is predicated on, I think two primary considerations. One, the fear of losing an unqualified bid, meaning a bid to pay the purchase price that's indicated and to close within a certain number of days, versus the fear that the offer that's being made is illusory and may lead to the loss of the Maywood bid.

It's certainly within the discretion of the receiver in attempting to maximize the value to take a jaundiced view of the application that has been put forth by the reconstituted bidder. If in fact it's been reconstituted. There is no proposal by [Essex] that says, please extend beyond the 30 days the time within which we can close and we will close . . . with or without this mortgage . . . .

So [Essex is] not prepared to tell the court or the receiver that [they]'re ready to close in this period of time with or without this very qualified conditional commitment being actually funded. And they're not pledging any of the other substantial assets as a means of covering the obligation. They're hedging their bets. And that creates a level of anxiety in the receiver, and in the court, that in fact this is not an unqualified offer to buy at this higher number; this is preserving wiggle room and further delaying again the process by which this asset gets turned into cash.

It's said that [Maywood] doesn't submit proofs or whatever that they're actually going to be able to close. Well, they're binding themselves to close in the contract and they're putting their money where their mouth is. If they walk after they pledge the money and they default, then the receiver has at least the benefit of their money in pocket. And then the process has to go forward. But I'm not going to question the bona fides of . . . Maywood to perform any more than anyone would question the bona fides of Essex to perform until they actually stumble and fail to perform in accordance with the contract.

Essex has had more than enough opportunity to meet the terms of the contract that it pledged to meet at the bid; close in 30 days, no contingencies. We're well past that, and they're still . . . raising deficiencies. And they're demonstrating an inability to deliver. So I have no hesitancy in approving the application of the receiver and denying the application of Essex.

Judge Contillo denied a request for a stay pending appeal and entered the order under review.

On November 12, Essex filed a Notice of Appeal. Dowd, Kab, and Valley all moved for summary disposition, arguing the appeal was interlocutory; alternatively, they sought acceleration of the appeal. In our order of January 31, 2011, we concluded the appeal was interlocutory, but denied the motion for summary disposition, exercised our discretion pursuant to Rule 2:2-4, and granted leave to appeal.

Before us, Essex contends that Dowd violated his obligation as receiver to obtain the highest price for the Property, and that Judge Contillo abused his discretion by not granting a reasonable extension so as to maximize the value of the Property. Essex also argues that Judge Contillo relied upon Lenker's certification, which should have been disregarded because it was not based upon personal knowledge. Lastly, Essex contends that Kab's opposition should have been ignored because it was further evidence of the acrimony between him and Savastano that initially flared when the Tru Med litigation was filed.

"Final determinations made by the trial court sitting in a non-jury case are subject to a limited and well-established scope of review: 'we do not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice[.]'" Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011) (alteration in original) (quoting In re Trust Created By Agreement Dated December 20, 1961, ex. rel. Johnson, 194 N.J. 276, 284 (2008) (internal quotation omitted)). "In that context, we also have emphasized that the appellate court therefore ponders whether, on the contrary, there is substantial evidence in support of the trial judge's findings and conclusions." Ibid. (citation and quotation omitted).

Decisions made by the court with respect to foreclosure proceedings are subject to review under an abuse of discretion standard. United States v. Scurry, 193 N.J. 492, 503 (2008). "Where the issue involves the trial court's exercise of discretion, the appellate court will not interfere unless the trial judge has 'pursue[d] a manifestly unjust course'" or "prejudiced the substantial rights of a party." Pressler and Verniero, Current N.J. Court Rules, comment 4 on R. 2:10-2 (2011) (quoting Gillman v. Bally Mfg. Corp., 286 N.J. Super. 523, 528 (App. Div.), certif. denied, 144 N.J. 174 (1996)).

N.J.S.A. 2A:50-31 provides:

When, in an action for the foreclosure . . . of a mortgage covering real . . . property, . . . the property mortgaged is of such a character or so situated as to make it liable to deteriorate in value or to make its care or preservation difficult or expensive pending the determination of the action, the superior court may, before judgment, upon the application of any party to the action, order a sale of the mortgaged property to be made at public or private sale through a receiver, sheriff, or otherwise, as the court may direct. The proceeds of any such sale shall be brought into court, there to remain subject to the same liens and equities of the parties in interest as was the mortgaged property and to be disposed of as the court shall, by order or judgment, direct.

"Because a receiver is an officer of the court, . . . a receiver's sale is a judicial sale." In re Fairfield Gen. Corp., 75 N.J. 398, 411 (1978) (citation omitted). "[O]nce the purchaser makes a bid which is agreed to by the seller, or he signs an agreement to purchase, he is bound to complete the purchase and to pay the agreed consideration unless the court, in refusing to confirm the sale, relieves him of his bid." Ibid.

Here, Essex does not contend that the conditions of the auction, the agreement of sale, or the orders of the court failed to place it on notice of its obligation to close title within thirty days. It only argues that because Dowd was to obtain the highest value for the Property, Judge Contillo abused his discretion by not extending the closing date to October 26, as requested.

However, at oral argument before Judge Contillo, Essex's counsel stated, "I can't tell your Honor anything other than [Essex] expect[s] to close on the mortgage with a combination of their funds and the mortgage financing." Judge Contillo noted that Essex failed to assure the court that it was "ready to close" title on the Property within the sought-after extension "with or without this very qualified conditional" commitment. His decision to deny the extension, therefore, rested upon Essex's failure to provide assurances that it would perform its contractual obligations. Judge Contillo's decision was not a mistaken exercise of his broad discretion to enforce the terms of the auction and sale, and we find no basis to disturb it.

Having reached that conclusion, the balance of Essex's arguments lack sufficient merit to warrant extensive discussion.

R. 2:11-3(e)(1)(E). It is true that Lenker's certification was not based upon personal knowledge. See R. 1:6-6 ("If a motion is based on facts not appearing of record or not judicially noticeable, the court may hear it on affidavits made on personal knowledge, setting forth only facts which are admissible in evidence to which the affiant is competent to testify."). However, Maywood's threat to "move on" was irrelevant to the issue of whether Essex was prepared to perform if the extension was granted. Moreover, Dowd himself certified that any extension would result in "significant risk to the estate" "given the current state of the commercial real estate market," implying that any further delay would imperil Maywood's bid.

Lastly, while Kab was represented at the hearing and urged the judge to deny the motion to extend and to declare Maywood the successful bidder, the record fails to demonstrate that Judge Contillo relied upon Kab's argument in any meaningful respect. Kab's motives, therefore, were irrelevant to the judge's decision.


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