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Columbia Bank v. Hamilton Properties Associates, L.P.

Superior Court of New Jersey, Appellate Division

July 3, 2013

COLUMBIA BANK, Plaintiff-Appellant,


Argued June 4, 2013

On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-5555-09.

Frederic M. Shulman argued the cause for appellant (Price, Meese, Shulman & D'Arminio, P.C., attorneys; Mr. Shulman, on the brief).

Jared M. Lans argued the cause for respondent.

Before Judges Yannotti and Hayden.


Plaintiff Columbia Bank (the Bank) appeals from a provision of an order entered by the Law Division on June 29, 2012, which required the Bank to pay $387, 199.11 to defendants. We reverse.


In November 2005, the Bank loaned Hamilton Properties Associates, L.P. (HPA) $5, 300, 000. In August 2006, the Bank loaned HPA an additional $750, 000. The loans were made in connection with defendants' refinancing and refurbishment of a shopping center on Franklin Turnpike in Waldwick, New Jersey. Both loans were secured by mortgages encumbering the property.

To further secure repayment of the loans, HPA executed and delivered to the Bank an assignment of leases and rents from the mortgaged property. Defendants Barbara M. Kosky, Daniel J. Kosky, Hamilton Properties Associates, Inc., and Douglas F. Doyle unconditionally guaranteed payment of HPA's obligations under the loan agreements.

In 2009, HPA defaulted in payments due on the loans. The Bank and HPA thereafter entered into an agreement modifying the terms of the loan agreements. HPA again defaulted. On June 23, 2009, the Bank filed a complaint against defendants in the Law Division, seeking the monies due on the loans, along with late fees, interest, prepayment premiums, attorney's fees and costs of suit. The following day, the Bank also commenced an action in the Chancery Division to foreclose on the mortgages issued to secure the loans.

In October 2009, the parties entered into a written settlement agreement. After HPA breached the terms of that agreement, the litigation resumed. In April 2010, the Bank obtained a judgment in the Law Division against defendants in the amount of $5, 898, 429, 75. Thereafter, the Bank secured an order from the court appointing a receiver and manager for the mortgaged property, who was charged with collecting tenant rents, paying the expenses for the property, and turning over the net proceeds to the Bank.

The Bank also secured a final judgment of foreclosure in the Chancery Division action. Among other things, the judgment directed the Bergen County Sheriff to sell the mortgaged property. The sheriff initially scheduled the sale for October 7, 2011, but the sale was adjourned and rescheduled for November 4, 2011.

HPA endeavored to effect a private sale to Vanick Properties, Inc. (Vanick), but the sale was not consummated. HPA and others thereupon instituted an action against Vanick and other parties in the Chancery Division. The court enjoined the sheriff from selling the property until December 2, 2011. The parties to that action engaged in negotiations, and sought to determine whether Vanick's offer would be sufficient to satisfy all of the claims against the property.

On November 15, 2011, Jared M. Lans (Lans), counsel for HPA and other parties, sent Frederic M. Shulman, the Bank's attorney, an e-mail message, offering to resolve the Bank's claims under the mortgages. In his e-mail, Lans acknowledged that the rent receiver had collected monies from the property and paid a portion of those funds to the Bank. Lans stated:

The attached receiver management reports show that the Bank received net income of $443, 280 for the period September 2010 through September 2011. ($128, 503 for the period September 2010 through December 2010 and $314, 777 for the nine months ending September 2011). I understand the rents were actually "taken over" by the [B]ank in July, 2010. Therefore, including the months of July and August 2010 and October and November 2011, at an average of $34, 000 per month, another $136, 000 would be added to that figure, bringing the total net income of $579, 280 to the [B]ank.

Lans calculated the total amount due to the Bank under the two mortgages, including interest, "[b]ased upon the final judgment and proofs submitted by Columbia in support thereof, " to be $6, 448, 000.66. Lans added the estimated amount of the sheriff's commission in the amount of $125, 000, and deducted late fees and pre-payment penalty, and asked Columbia to accept a payoff of $5, 927, 513.75.

Shulman advised Lans the Bank would not accept the amount offered by Lans but would accept a payoff of $6, 125, 000, which included the sheriff's commission, on the condition that the closing occurred on or before December 2, 2011, the date the court's injunction restraining the sheriff's sale would expire. Defendants agreed to Columbia's counteroffer but the closing did not occur before December 2, 2011.

The parties appeared in court on December 2, 2011, and after further discussion, reached an agreement, which called for a further adjournment of the sheriff's sale and the sale of the subject property before December 29, 2011. Lans stated on the record that the Bank had agreed to reduce the actual balances due on its loans, and the "numbers" had been confirmed in emails exchanged by the attorneys.

Closing on the sale took place December 30, 2011. Due to an apparent shortfall in available closing proceeds, the Bank agreed to accept $6, 066, 145.43 as the payoff amount. On January 11, 2012, the Bank issued a check to the Bergen County Sheriff in the amount of $118, 522.71, which was in addition to the $1, 000 previously paid to the sheriff for the commission.

On January 18, 2012, the Bank filed a motion in the Law Division seeking to discharge the rent receiver. Defendants did not oppose that motion but filed a cross-motion seeking an order requiring the Bank to return any funds in excess to the amounts it was entitled to receive. Columbia opposed the cross-motion, arguing that it had not received any monies to which it was not entitled. The motion judge heard argument on the motions and determined that an evidentiary hearing was required.


At the hearing, John M. Azarian (Azarian), the rent receiver, testified that, after his appointment, he collected rents from the mortgaged property, and after paying the property's expenses, tendered the net proceeds to the Bank. Azarian stated that between September 2010 to the end of his appointment in December 2011, he paid Columbia $527, 665. Azarian also said he was still holding $22, 756.75 in funds from the property.

Paul A. Heilmann (Heilmann), Columbia's Senior Vice President, testified that in March 2010, the Bank sought a final judgment against defendants in the Law Division action. In an affidavit dated March 30, 2010, which was submitted in support of that application, Heilmann stated that the unpaid principal due on the two notes was $5, 798, 762.54. Heilmann said that with interest, charges for bounced checks, less credits due to defendants, the amount due to the Bank was $5, 816, 709.20.

In his affidavit, Heilmann also stated that additional interest would accrue under the notes until the return date of the motion, and giving defendants certain additional credits, a judgment should be entered in the amount of $5, 831, 725.99. The return date of the motion was adjourned, and Heilmann thereafter submitted another affidavit, dated April 23, 2010, in which he said that additional interest had accrued on the monies due and the total amount owed was $5, 898, 429.75. The Law Division entered a judgment against defendants in that amount.

In August 2010, the Bank sought a final judgment in the foreclosure action. In a certification dated August 19, 2010, Heilmann stated that the amount owed on the two notes as of August 15, 2010, was $6, 062, 079.07, which included unpaid principal, interest, late charges, prepayment penalties, and advances for real estate taxes.

The Chancery Division entered a final judgment of foreclosure on August 16, 2011, stating that $6, 062, 079.07 was due, as of August 15, 2010. The judgment directed the Bergen County Sheriff to sell the mortgaged property. In October 2011, the Bank sent a fax to the sheriff, in anticipation of the sale of the property. The fax indicated that the payoff amount for both notes was $6, 479, 962.88.

In his testimony, Heilmann conceded that, at the time the Bank provided the sheriff this payoff amount, the rent receiver had paid it $447, 500 in net proceeds from the property. Heilmann acknowledged that the Bank did not inform the sheriff that it had received those monies. He stated, however, that if the sheriff's sale had gone forward, defendants would have received a credit for the receiver's payments.

Heilmann further testified that if defendants were credited with the $447, 500 the Bank had received from the receiver, the payoff amount would be $6, 032, 462.88. Heilmann said that after October 2011, Columbia received an additional $80, 165 from the receiver.

Heilmann explained that in November 2011, the Bank provided defendants with a payoff amount of $6, 125, 000, which included the sheriff's commission of $125, 000. He said the counteroffer reflected the amounts the receiver paid the Bank. He also said that the Bank received $6, 066, 145.43 at closing, and paid the sheriff a commission of $119, 522.71.

Lans testified that in November 2011, he sent an e-mail to Shulman which set forth the amount defendants proposed to pay the Bank to pay off the obligations owed to it. Lans said he based his offer on the amounts set forth in the foreclosure judgment. He also indicated that, at the time he made the offer, he was aware of the monies that the receiver had collected from the property and paid to the Bank.

Lans further testified that defendants offered a payoff amount of $5, 927, 513.75. Lans said that the starting point for calculating the offer was the amount that Columbia had informed the sheriff was due, about $6, 449, 000. Lans acknowledged that the Bank made a counteroffer of $6, 125, 000, which was accepted. He said that the Bank ultimately accepted a payoff of $6, 066, 145.43 at closing.


The judge filed a written opinion dated June 29, 2012. The judge concluded that the parties had reached a global settlement of the Chancery Division and Law Division actions, under which Columbia would receive $6, 125, 000, which included the sheriff's commission. The judge noted that the property was sold to a third party and the closing on that sale took place on December 30, 2011. The judge said the Bank did not credit defendants with the monies it had received from the receiver, when it calculated the payoff amount for the sheriff and negotiated the settlement.

The judge found that the Bank had received $6, 066, 145.43 at closing, plus $527, 665 from the rent receiver for a total of $6, 593, 810.43, from which the Bank "was forced to unexpectedly shave off" $58, 854.57. The judge said the "cut" had been "imposed on the [B]ank" because, if it did not agree to accept the lesser amount, the closing would have been "seriously threatened" and a sheriff's sale "would have been probable."

The judge also stated that "[f]airness dictates that if the [d]efendants, who breached their loan agreements and forced all of this activity in motion, now persist to claim overpayments, then, they too must account for the unexpected underpayment of their settlement agreement made at closing." The judge wrote that while the Bank

eventually received more than what it settled for, it should be credited back the $58, 854.57 it was forced to chop at closing under pressure. $6, 593, 810.43 less [the] settlement amount of $6, 125, 000 renders $468, 810.43 in a gross overpayment to the [B]ank. $468, 810.43 less the unexpected hit taken by the [B]ank at closing of $58, 854.57 renders the overpayment to the [B]ank $409, 955.86. Since $22, 756.75 still remains in the rent receiver's account, this amount should be applied to the amount due the [d]efendants. As such, it shall be paid to [d]efendants in further satisfaction of this overage, reducing the $409, 955.86 net overpayment by $22, 756.75. The net overage payment to Columbia Bank is, therefore, $387, 199.11.

The judge entered an order dated June 29, 2012, which (1) discharged the rent receiver; (2) ordered the receiver to pay defendants the "surplus" funds, which the opinion indicated totaled $387, 199.11; and (3) required the receiver to remit $22, 756.75 to defendants. This appeal followed. The trial court's order was stayed pending disposition of the appeal.


The Bank argues that the terms of the negotiated settlement were clear and should have been enforced as written. We agree.

"'Settlement of litigation ranks high in our public policy.'" Nolan v. Lee Ho, 120 N.J. 465, 472 (1990) (quoting Jannarone v. W.T. Co., 65 N.J.Super. 472, 476 (App. Div.), certif. denied, 35 N.J. 61 (1961)). Settlement agreements should be honored in the absence of evidence of fraud or some other compelling circumstances. Ibid. (citing Pascarella v. Bruck, 190 N.J.Super. 118, 125 (App. Div.), certif. denied, 94 N.J. 600 (1983)).

An appellate court is required to defer to the findings of fact rendered by a trial judge, sitting without a jury, when those findings are supported by sufficient credible evidence. Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 484 (1974). However, the interpretation of a contract is ordinarily a legal question for the court, which is subject to de novo appellate review. Kieffer v. Best Buy, 205 N.J. 213, 222 (2011); Cole v. Jersey City Med. Ctr., 425 N.J.Super. 48, 56 (App. Div.), certif. granted, 212 N.J. 198 (2012).

We are convinced that there is sufficient credible evidence in the record to support the judge's finding that the parties agreed to resolve the Bank's claims for $6, 125, 000, which included the sheriff's commission. However, we are convinced that there is insufficient evidence to support the judge's finding that the Bank had been paid more than it was entitled to receive under the settlement agreement.

The judge's determination is based on a flawed interpretation of the settlement agreement. The judge found that the $6, 125, 000 payoff amount did not reflect the amounts the Bank had received from the rent receiver. The record shows, however, that the settlement amount agreed upon by the parties took into account the monies the rent receiver had previously tendered to the bank.

As we have explained, Lans' November 15, 2011 e-mail set forth defendants' proposal to settle the Bank's claims with payment of $5, 927, 513.75. In his e-mail, Lans noted that the Bank had received about $580, 000 from the rent receiver. The Bank did not accept the offer but provided a counteroffer, proposing a payoff amount of $6, 125, 000, which was accepted.

The only inference that could fairly be drawn based on Lans' e-mail and the Bank's counterproposal is that the parties agreed to a payoff amount of $6, 125, 000, which would satisfy the amounts due to the Bank, taking into account the monies that the Bank had received from the rent receiver. Defendants' proposal reflected the amounts the receiver had paid the Bank. Since the Bank's counteroffer did not indicate otherwise, the amount the Bank proposed as a payoff, like Lans' offer, also took into account the monies the receiver had previously paid to the Bank.

Defendants accepted that counteroffer, and never indicated that they would be entitled to a further credit or refund of the amounts that the Bank had received from the receiver. The resulting settlement therefore reflects the parties' agreement to resolve the Bank's claim for $6, 125, 000, which was over and above the amounts the Bank received from the rent receiver.

Furthermore, as we stated previously, defendants paid the Bank $6, 066, 145.43 at the closing. There is no evidence showing that defendants reserved the right at closing to a credit or refund of the monies the Bank had received from the receiver, thereby indicating that the parties understood and agreed that the Bank's payoff amount was over and above the monies the receiver had tendered to the Bank.

Moreover, as the Bank points out, if its counteroffer of $6, 125, 000 did not reflect the monies it had received from the receiver, the counteroffer would leave the Bank with less than the $5, 927, 513.75 that defendants had proposed to pay. The Bank correctly asserts that it is not rational to assume that, after several years of litigation, it would make a counteroffer proposing to accept about $200, 000 less for its claim than the amount defendants had offered to pay.

The judge also erred by giving the Bank a credit for the $58, 854.57 it agreed to waive at the closing. The judge stated that the Bank was "forced" to waive payment of this amount. There is, however, insufficient evidence in the record for the conclusion that the Bank was in any way compelled to forgo payment of the $58, 854.57.

As the record shows, the parties agreed to settle the bank's claims for $6, 125, 000. At the closing, the Bank agreed to accept less than that amount in order to resolve its claims. Heilmann said the Bank took that course to bring finality to this dispute.

The judge believed that fairness required the Bank to be paid the $58, 854.57 it had waived at closing. However, it is well established that a court may not make what it believes to be a better contract for the parties than the contract the parties have made for themselves. Karl's Sales & Servs., Inc. v. Gimbel Bros., Inc., 249 N.J.Super. 487, 493 (App. Div.) (citing James v. Fed. Ins. Co., 5 N.J. 21, 24 (1950)), certif. Denied, 127 N.J. 548 (1991). Where, as here, the terms of the agreement are clear, the court is obligated to enforce those terms.

We therefore conclude that the judge erred by ordering the Bank to return $387, 199.11 to defendants. We note that the Bank does not challenge the part of the court's order requiring the receiver to pay defendants the $22, 756.75 he was holding.


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