On appeal from the Superior Court of New Jersey, Chancery Division, Atlantic County, Docket No. C-0112-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Lihotz, Waugh, and St. John.
Plaintiffs Sea Village Marina, LLC (LLC), and Baywatch Marina, LLC (Baywatch), appeal from the General Equity Part's August 18, 2011 order dismissing plaintiffs' complaint on a motion for summary judgment. We reverse.
We discern the following facts and procedural history from the record on appeal.
At some point prior to 1994, John Best and his wife, defendant Patricia Ann Best,*fn1 created Sea Village Marina, a community of floating homes and a boatyard in Northfield. The boatyard provided rack storage and launching sites for boats, as well as boat repairs and sales. According to Patricia, she and John had "made significant capital contributions in turning the subject marina into a working entity."
In April 1994, Patricia and John transferred a twenty-five percent interest in the LLC to their son Mark. Patricia owned a seventy-percent interest, and John retained the remaining five-percent. The record contains an unsigned document entitled "Operating Agreement of Sea Village Marina LLC adopted December 8, 2001." The operating agreement identified Patricia and John as managing members and gave them the power to "make decisions regarding the usual affairs" of the LLC and to bind the LLC through agreements, including the assumption of debt and disposition of assets.
In the fall of 2003, John was diagnosed with a terminal illness. He began working on an estate plan with his attorney. The plan regarding the LLC was premised on John being the sole owner. John apparently intended to acquire Mark's twenty-five-percent interest in exchange for a $200,000 mortgage, which would be subordinate to a $1.6 million mortgage that the LLC would give to Patricia and John with rights of survivorship. Neither mortgage would accrue interest, and both were to be paid off prior to any sale of the LLC. Any value remaining in the LLC after payment of the mortgages was to be divided equally among John's four children.
In October 2003, Patricia assigned her seventy-percent-interest in the LLC to John. On the same day, the LLC executed a $1.6 million note and mortgage to John and Patricia as joint tenants with rights of survivorship. The note specifically provided that the funds were to be repaid prior to any sale of the LLC. The mortgage recited that it was given to John and Patricia "[i]n return for loans received and unpaid services that Sea Village Marina, LLC has received from" them. According to Patricia, John left handwritten notes listing the various capital contributions that he and she made to the LLC. The total listed in those documents is $1,931,264. Patricia maintains that the issuance of the mortgage and her transfer of her seventy-percent interest in the LLC to John "was a package deal."
John executed his will in December 2003. With respect to the LLC, John directed his executors to "hold my interest" in the LLC "until such time as the [two mortgage] debts . . . are satisfied in full." Although John's will refers to the "two debts," John had not actually acquired Mark's twenty-five-percent interest in the LLC or issued a mortgage to Mark at the time the will was executed. John directed that Patricia be appointed to manage the LLC until the debts were paid in full. John's son-in-law, Stephen Green, and Patricia were designated as co-executors. Patricia was the residuary legatee.
John died on December 22, 2003. Shortly before his death, John asked Mark to transfer his interest in the LLC to him, but Mark refused. Consequently, ownership of the LLC was split between Mark and John's estate at the time of John's death.
Patricia recorded the $1.6 million mortgage on December 30. According to Mark, he had not known that John and Patricia had executed such a mortgage prior to its recordation. He maintains that he would not have consented to the mortgage, primarily because he did not believe that there was any underlying debt owed to John or Patricia.
In July 2004, Patricia obtained an appraisal valuing the fair market value of the LLC at $2.75 million, as of May 2004. The estimate was broken down as follows: $2.27 million for the real property, $180,000 for chattels, and $300,000 for the business. That is the only appraisal contained in the record.
In early 2007, Patricia and Green applied to the Probate Part for permission to resign as co-executors of John's will. Patricia also requested permission to resign as manager of the LLC. In May 2007, the probate judge granted their applications and named Barbara Lieberman, an attorney, as administrator CTA and manager of the LLC.
In July 2007, Lieberman filed an application in the Probate Part for a determination of the validity of Patricia's $1.6 million mortgage. The judge declined to address the issue in that manner, but ordered that any of John's heirs who wished to challenge the mortgage should do so prior to October 15, 2007. Because none of the heirs challenged the mortgage, the parties proceeded as if the mortgage was a valid debt of the LLC. As the judge later observed, "there was a general understanding within the estate litigation . . . that [Patricia's mortgage] was not going to be subject to attack in the most general sense." However, the judge did not enter an order declaring that the mortgage was valid or precluding the LLC itself or anyone not a beneficiary of the will from challenging its validity in ...