NEW GOLD EQUITIES CORP., a New Jersey Corporation, Plaintiff-Appellant/ Cross-Respondent,
JAFFE SPINDLER COMPANY, a New York limited partnership, Defendant-Respondent, and 111 FIRST STREET ASSOCIATES, a New Jersey Partnership, Defendant, and M&T BANK, a New York business corporation, Defendant-Respondent/ Cross-Appellant.
November 15, 2017
appeal from Superior Court of New Jersey, Chancery Division,
Hudson County, Docket No. C-000025-13.
Brendan M. Walsh argued the cause for
appellant/cross-respondent (Pashman Stein, attorneys; Michael
S. Stein and Brendan M. Walsh, of counsel and on the briefs).
Robert Schrager (Hodgson Russ LLP) of the New York bar,
admitted pro hac vice, argued the cause for
respondent/cross-appellant (Erin Nicole Teske (Hodgson Russ
LLP), Jacquelyn R. Trussell (Hodgson Russ LLP) and S. Robert
Schrager, attorneys; Erin Nicole Teske, Jacquelyn R.
Trussell, and S. Robert Schrager, on the briefs).
Bertone Piccini, attorneys for respondent (Joseph A.
Pojanowski, III, on the brief).
Judges Alvarez, Currier, and Geiger.
New Gold Equities Corporation (New Gold) appeals from a June
5, 2015 judgment entered in favor of
defendant/cross-appellant M&T Bank (the Bank), an
indenture trustee, in its negligence action concerning a $2,
100, 000 bond. We affirm the trial judge's decision
entering judgment for the Bank, in part, because the duties
of the indenture trustee were properly limited to those
enumerated in the trust agreement. We also affirm the
judge's post-judgment August 25, 2015 order denying the
Bank's application for $360, 335.85 in attorney fees and
$45, 707.56 in costs. The indenture agreement did not
obligate New Gold to reimburse the bank for the legal
expenses it incurred defending against its own negligence.
Gold acquired the property in 1990 from Old Gold Associates
(Old Gold),  which had purchased it on December 22,
1982, from defendant Jaffe Spindler Company, LLC (Jaffe). The
transaction was financed through a thirty-year commercial
bond agreement, secured by a mortgage against the property,
issued by the New Jersey Economic Development Authority
yearly interest rate on the bond was fixed at 13%. New Gold
was required to actually pay, however, monthly interest
ranging at a reduced 6.29% to 7.62%. The difference between
the base rate and the monthly interest, described in the loan
documents as "deferred interest, " accrued but was
not due if the principal balance was paid at any time during
the first eleven months of the last year of the loan -
between December 23, 2011, and November 22, 2012.
other words, New Gold would not have to pay $3, 714, 864 in
accrued but deferred interest if the principal was satisfied
on or before November 22, 2012. New Gold did not exercise this
option, thus the bond's principal balance of $2, 100, 000
together with the deferred interest all became due at the
loan maturity date on December 22, 2012.
2010, the Bank became the indenture trustee, assuming the
role from a series of predecessor entities. Marco Medina, a
Bank employee, administered the bond from 2010 to the
Gold employed BLDG Management Company, Inc. (BLDG), as the
property manager. Senen Bacalan was the BLDG employee
responsible for the administrative tasks relative to the
November 12, 2012, forty days before maturity and ten days
before the prepayment option expired, Bacalan sent an email
to Medina requesting a payoff figure at the maturity date,
December 22, 2012: the "usual status letter indicating
the principal balance and per diem interest." Medina,
who was entirely unaware of the deferred interest provision,
did not respond until November 27, 2012, fifteen days later.
He forwarded a payoff statement that read: "[t]his
letter will serve as notice that on December 22, 2012, the
[bond] issued in the amount of $2, 100, 000 shall be due and
payable. Also due at this time is interest in the amount of
Bacalan pointed out that the payoff figures did not include a
smaller subordinate bond, Medina sent Bacalan a corrected
payoff reflecting an accurate total principal balance due of
$2, 330, 000. Bacalan identified another error in that second
payoff statement, the omission of the interest that had
accrued on the subordinate bond. On December 18, 2012, Medina
responded with a third corrected payoff, stating that an
additional $16, 017.34 in interest was due.
preparing the payoff statements prior to the December 22,
2012 maturity date, Medina did not review the bond documents.
Thus none of the payoff statements included any mention of
the additional deferred interest.
December 19, New Gold paid the December 18, 2012 payoff
statement amounts. After the payment, Medina learned about
the deferred interest clause, reviewed the terms of the bond
for the first time, and notified New Gold of the additional
who was also unaware of the deferred interest clause, had
inherited handwritten notes and calculations regarding the
bond obligation from his predecessor, Patrick Knowles.
Knowles, who began working at BLDG in 1990 and retired in
2011, had written "deferred int. $1, 000, 827.46"
on a page of the mortgage schedule. Bacalan, although he had
those materials, had never asked anyone about the notations,
nor had he read the actual bond documents.
February 13, 2013, Jaffe sent NJEDA a letter demanding
payment of the $3, 714, 864 deferred interest and threatening
to foreclose on the mortgage if it was not made. A parallel
foreclosure proceeding was thereafter filed by Jaffe.
indenture agreement entered into between Jaffe, New
Gold's predecessor in interest Old Gold, and the NJEDA,
states that the Bank's predecessor is appointed a trustee
so as to "receiv[e] and apply all payments . . . as
hereinafter provided." The Bank's duties were
expressly limited to
Section 6. Duties of Trustee with Respect to Bond
A. The Trustee agrees to receive all payments and deposits
required to be paid under the Authority Agreement and to make
all payments required to be made under the Bond and Mortgage
(or under the Authority Agreement in the event the same is
assigned to the holder of the Bond and Mortgage pursuant to
the terms of Section "4.06" of the Bond Agreement)
i) make payments to the holder of the Existing Mortgage, or
withhold such payments upon receipt of reasonable evidence
that such payments have been made;
ii) pay taxes and insurance premiums;
iii) transmit the net amount due to the holder of the
Mortgage and the obligee of the Bond. The holder of the
Mortgage and the obligee of the Bond shall have the right to
demand that the Trustee, after making payment on the Existing
Mortgage, or underlying obligation thereof, remit the balance
due to the obligee of the Bond by more than one (1) check and
the mailing of the same to more than one (1) individual; and
in which event, after notice thereof to the mortgagor,
separate payments and mailings shall be made to the various
participating holders and obligees according to their
respective interests, as contained in the notice thereof to
said mortgagor; and
iv) make prepayments only when directed by the Seller.
B. Any payments made to the Trustee on account of real estate
taxes shall be held in escrow in an interest-bearing account,
if permissible. The deposit shall be applied to the taxes due
for the then current fiscal tax year with any overpayment or
underpayment to be adjusted within sixty (60) days of the end
of such period. The requirements for this deposit shall be
waived for three (3) months for each quarterly tax payment
theretofore made directly by the obligor required to pay such
taxes provided that evidence of the payment is furnished to
the holder of the Mortgage and the Trustee. In the
alternative, the obligor required to pay such taxes may
require the Trustee to prepay taxes out of excess tax escrow
funds, if any, on deposit with the Trustee;
C. Any payments made to the Trustee on account of insurance
premiums shall be held, in escrow in an interest-bearing
account, if permissible, and shall be applied to the payment
of such premiums. The requirement for this deposit shall not
apply in any year in which the holder of the Mortgage shall
be furnished with a prepaid policy for such year;
D. The Trustee may rely on all certificates, documents and
other proofs delivered to it by [Old Gold] pursuant to this
Agreement as to the facts therein disclosed and the
statements therein made.
[Old Gold] hereby acknowledges that it is familiar with all
the duties of the Trustee and agrees not to interfere with
the Trustee's exercise of its duties. [Old Gold] further
agrees that the Trustee, the Seller and their respective
employees shall not be liable for, and agrees to hold the
Trustee, the Seller and their respective employees harmless
against any loss or damage suffered by the Company as a
result of the Trustee's good faith performance hereunder,
except loss or damage resulting from the negligence or
willfull misconduct of the Trustee or its employees.
E. At the direction of [Old Gold], the real estate taxes
remain unpaid for the immediately preceding two consecutive
F. The Trustee agrees to make all payments required to be
made promptly on receipt of funds; after said receipt of
funds have been cleared and the Trustee has collected funds.
Gold's complaint sought to cancel the mortgage securing
the bond, alleging that the deferred interest was an illegal,
unenforceable, and uncollectable disguised penalty. New Gold
also sought judgment discharging the mortgages, liens, and
encumbrances on the property, as well as damages. Jaffe
counterclaimed in foreclosure and for possession.
judgment motions and cross-motions were filed by the parties
in both this action and Jaffe's separate foreclosure
action. On August 28, 2013, among other relief, Judge Hector
Velazquez granted Jaffe summary judgment in this case, and
partial summary judgment in the parallel foreclosure
proceeding. The judge concluded that as a matter of law the
deferred interest provision was not a penalty because it was
"simply due at maturity[.]" Jaffe Spindler Co.,
LLC v. New Jersey Econ. Dev. Off., No. A-5718-13
(App.Div. July 8, 2016) (slip op. at 4), cert. denied, 228
N.J. 266 (2016).
appeal taken in the foreclosure proceeding, we affirmed the
judge's grant of partial summary judgment to Jaffe
despite the fact it issued prior to the completion of
discovery. Id. at 3. We also affirmed the
judge's holding that the deferred interest provision was
not an illegal penalty. Ibid. Subsequent to that decision,
New Gold proceeded solely against the Bank in this litigation
and Jaffe foreclosed on the property.
judge denied summary judgment to the Bank because disputed
issues of material fact existed as to whether the Bank had
actually assumed a duty when it provided the payoff
statement, or could be found negligent in the manner it
responded. In order to prevail, then, New Gold would have to
establish that the ...