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Pantelopoulos v. Fort Lee Federal Savings Bank

Superior Court of New Jersey, Appellate Division

August 20, 2013

EVAN PANTELOPOULOS, Plaintiff-Appellant/ Cross-Respondent,


Argued January 23, 2013.

On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-320-10.

Robert Hensler argued the cause for appellant/cross-respondent.

Steven C. DePalma argued the cause for respondents FDIC in its capacity as Receiver for Fort Lee Federal Savings Bank, FSB, Dr. Haralambos Kostakopoulos and Patricia Ludwiczewski (Nicoll Davis & Spinella, LLP, attorneys; Mr. DePalma, on the brief).

G. Glennon Troublefield argued the cause for respondents/cross-appellants (Carella, Byrne, Cecchi, Olstein, Brody & Agnello, P.C., attorneys; Mr. Troublefield, of counsel and on the briefs).

Before Judges Ostrer and Kennedy.


This appeal arises out of plaintiff's purchase of a participation interest in a loan that defendant Fort Lee Federal Savings Bank (FLFSB) made to defendant 9211 Bergen Boulevard, LCC (Boulevard). Boulevard defaulted on the loan and FLFSB failed to repay plaintiff as promised. Plaintiff, pro se, then brought suit against the Bank and its president, Dr. Haralambos Kostakopoulos (collectively the Bank Defendants), and Boulevard and its principal, Konstantinos Kalogeras (collectively Bergen Defendants) seeking repayment and other relief, based on claims of breach of contract, fraud, the Consumer Fraud Act, and other grounds.[1]

The trial court dismissed plaintiff's direct claims against the Bergen Defendants, finding plaintiff lacked privity to sue, but the court denied the Bergen Defendants' application for fees based on a claim of frivolous litigation. Boulevard ultimately cured its default, and FLFSB paid plaintiff the principal owed, plus accrued interest. The court thereafter granted the Bank Defendants summary judgment, dismissing plaintiff's remaining claims for counsel fees, costs, and consequential damages.

Plaintiff appeals from the dismissal of its claims against the Bergen Defendants, and the grant of summary judgment to the Bank Defendants. The Bergen Defendants cross-appeal from the court's denial of fees based on their claim of frivolous litigation. Having reviewed the parties' arguments in light of the facts and applicable law, we affirm.


On July 28, 2008, FLFSB entered into a $2, 053, 750 loan with Boulevard, which Kalogeras personally guaranteed. The United States Small Business Administration (SBA) also guaranteed $1, 539, 750 of the loan. The note was secured by a mortgage on real property at 9211-9215 Bergen Boulevard, where Boulevard operated a diner.[2] The maturity date of the mortgage was August 1, 2033. The loan had a variable interest rate pegged to the prime rate and adjustable monthly.

After the loan was made, Kostakopoulos solicited plaintiff, a substantial depositor, to persuade him to purchase a participation interest in the portion of the loan that the SBA did not guarantee. FLFSB had loaned Boulevard the maximum amount of funds allowed under federal lending limits. Sale of a participation in the loan was apparently intended to create room for FLFSB to continue to lend to Kalogeras.[3]

Plaintiff alleges that Kostakopoulos represented that Boulevard was in the process of selling a diner it owned, the Golden Eagle Diner, and the proceeds from the sale would be used to repay the original loan early. However, apparently, the Golden Eagle Diner was owned by another entity, 239 Broad Avenue, LLC, in which Kalogeras was involved, and not Boulevard, which apparently owned the North Bergen Diner on Bergen Boulevard in North Bergen. Kostakopoulos allegedly represented that the Golden Eagle Diner would be sold to a group of businessmen for $5 million within six to eight months. In the event the deal fell through, a second investor group was prepared to pay $7 million. Plaintiff alleges Kostakopoulos assured him there was no risk of default. The Bank Defendants admit that Kostakopoulos conveyed information he received from Kalogeras, but deny these were representations of fact.

On April 9, 2009, plaintiff entered into a Loan Participation Agreement and Certificate (Participation Agreement) with FLFSB. We will review the terms of the Participation Agreement in greater detail in our discussion of the legal issues. Suffice it to say here, plaintiff purchased, at a cost of $200, 000, a 38.97% interest in the $513, 250 of Boulevard's loan that SBA did not guarantee. FLFSB agreed to repay plaintiff's principal after twelve months, although it could be extended for another single six-month period.

Plaintiff entered into a second Participation Agreement[4]with FLFSB on October 31, 2009, when he purchased an additional 29.23% interest in the unguaranteed portion of the Boulevard loan for $150, 000. The maturity date of the second agreement was "CO-TERMINUS WITH THE FIRST PARTICIPATION." FLFSB agreed to pay eight percent interest in both agreements, which was significantly higher than what plaintiff earned on his deposits. Both participation agreements contained identical provisions as to the rights and duties of the parties.

The Participation Agreement provided that the only source of payments to plaintiff would be collections from Boulevard, and FLFSB would pay plaintiff immediately upon receipt of collections. "[A]fter the Lender [FLFSB] has received any Collections from the Borrower [Boulevard], Lender shall remit to Participant [plaintiff], but only from Collections, the Participant's Percentage and the interest due thereon since the last Resettlement Date."

Boulevard defaulted on the underlying loan and ceased payments to FLFSB, which in turn ceased payments to plaintiff in April 2010.[5] FLFSB determined not to foreclose or commence suit against the Bergen Defendants. FLFSB expected the sale of the Golden Eagle Diner by October 2010, and expected repayment of its loan to FLFSB, enabling FLFSB to repay plaintiff. However, the sale did not occur when anticipated.[6]

When the Participation Agreements were about to mature in October 2010, plaintiff pro se filed an order to show cause and verified complaint against the Bank Defendants and the Bergen Defendants. The five-count verified complaint alleged that the Bank Defendants fraudulently induced plaintiff to enter into the Participation Agreements by promising a prompt sale of Boulevard's diner. In his first four counts, he asserted claims against the Bank Defendants sounding in fraud, breach of contract, breach of fiduciary duty, unjust enrichment, and violation of the Consumer Fraud Act. In the fifth count, he asserted FLFSB's rights under the Bergen Defendants' note. He sought an order authorizing him to act in FLFSB's stead to declare the Bank Defendants' default and to enforce the terms of the loan; and he sought entry of judgment consisting of repayment of his $350, 000 loan participation, interest, attorney's fees and costs.

He also sought much the same relief on an emergent basis. Plaintiff sought an emergent order compelling the Bank Defendants to repay plaintiff the amount due, plus attorney's fees. He also sought an order permitting him to act in the place of FLFSB, to declare the Bergen Defendants in default, to compel them to repay plaintiff his principal plus eight percent interest, and attorney's fees; and to appoint plaintiff receiver of North Bergen Diner.

Although plaintiff filed his complaint pro se, he admitted he received assistance from attorneys in preparing his papers and prosecuting his claims. One licensed New Jersey attorney, Ira Metrick, served plaintiff's verified complaint and order to show cause on counsel for the Bergen Defendants who consented to accept them. Metrick wrote: "At this time, this office's representation is limited to assistance in serving these pleadings as required by the court." However, Metrick or another attorney apparently had also drafted plaintiff's papers.

The trial court entered the order to show cause without temporary restraints or emergent relief, and scheduled a return date of November 5, 2010.[7] Before that date, the Bergen Defendants served plaintiff with a safe harbor letter pursuant to Rule 1:4-8 and N.J.S.A. 2A:15-59.1, advising him that his claims lacked a factual or legal basis, as he had no authority to seek relief directly from the Bergen Defendants. The letter advised plaintiff that if he did not timely withdraw his complaint, they would seek litigation costs. Plaintiff did not comply.

Before the return date, Richard Ludwiczewski admitted in a certification that Boulevard had ceased payments in April 2010, and plaintiff had urged FLFSB to take legal action. Ludwiczewski stated that FLFSB "ha[d] chosen to defer taking immediate legal action against [Boulevard] because of the representations by the Borrower [defined in Ludwiczewski's certification as Boulevard] that he [sic] is attempting to procure the sale of the Golden Eagle Diner that would provide money for the repayment of the loan." Ludwiczewski stated that FLFSB forbore after it weighed the risks of legal action, and the potential damage to its customer relationship with Boulevard. Ludwiczewski did not address the provisions of the Participation Agreement stating that FLFLSB "will not, without [plaintiff's] prior written consent . . . modify, release, waive or discharge the Borrower and/or Guarantors . . . from any liability in connection with the Loan [or] . . . waive any rights and remedies provided for in the Loan Agreement . . . [or] waive any payment default or financial covenant[.]" Ludwiczewski asserted plaintiff assumed the risk of nonpayment.

The Bergen Defendants argued plaintiff had no right of direct action against them. According to the Bank Defendants' counsel, Metrick attended the order to show cause hearing.

The court denied summary relief. It reasoned that the heart of plaintiff's claim was a breach of contract claim, and plaintiff had no right of direct action against the Bergen Defendants.

I've read the loan participation documents, and there is a remedy if in fact there is a mishandling of the transaction by the lender. The remedy is, in event of gross negligence or willful misconduct in the administration of the loan causing a loss to the plaintiff, then he can recover his losses together with reasonable attorney's fees and costs.
The loan participation agreement does not strip the lender of the right to drive the bus; meaning the right to determine when and how it is going to enforce its rights with respect to any default by the borrower. The plaintiff has no right to impinge upon the exercise of that discretion by the lender.

The Bank Defendants and the Bergen defendants then filed answers to the complaint. Thereafter, Metrick served a deposition subpoena, interrogatories, and document production requests, on the Bergen Defendants' counsel. Included with one discovery request, he stated, "Please be advised that this office has been retained by Mr. Pantelopoulos for the limited purpose of assisting with discovery. This office has NOT been retained as counsel of record for the litigation." Metrick also invited opposing counsel to contact him "[s]hould you wish to discuss this matter[.]"

In early December, plaintiff pro se sought permission to file an amended complaint to add nine additional counts, including four against the Bank Defendants, separate counts against Kostakopoulos, Patricia Ludwiczewski, Kalogeras, both Bergen Defendants, and all defendants alleging embezzlement. Plaintiff sought imposition of a "judicial lien on cash assets" held at FLFSB and other financial institutions in the name of Boulevard, Kalogeras and other entities apparently connected to them.

The Bergen Defendants served plaintiff with a second notice of frivolous litigation on December 7, 2010, and cross-moved to dismiss the fifth count of the complaint and for the award of counsel fees. The Bergen Defendants served plaintiff with a third notice of frivolous litigation on December 17, 2010.

In a written opinion filed February 10, 2011, the court granted plaintiff's request to amend only as to the Bank Defendants, but excluding the embezzlement count; dismissed with prejudice the claims against the Bergen Defendants for failure to state a claim; and denied the Bergen Defendants attorney's fees. The court reasoned that plaintiff lacked privity ...

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