Court Opinion

ID: 2657191
Source: CourtListenerOpinion
Date Created: 2014-03-19 15:46:35.664751+00
Date Added: 2024-06-11T13:00:20.665982
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
               APPROVAL OF THE APPELLATE DIVISION

                                  SUPERIOR COURT OF NEW JERSEY
                                  APPELLATE DIVISION
                                  DOCKET NO. A-2013-12T1

NEW JERSEY REALTY CONCEPTS,
LLC, THOMAS DINARDO, JOSEPH F.
BELASCO, JR.,                         APPROVED FOR PUBLICATION

     Plaintiffs,                           March 19, 2014

                                        APPELLATE DIVISION
v.

JOHN MAVROUDIS, MICHAEL MAVROUDIS,
INDUSTRIAL CONDOMINIUM ASSOCIATES,
LLC, RIO VISTA PROPERTIES LLC, LAW
FIRM OF MAVROUDIS & RIZZO, RIO
VISTA CONSTRUCTION COMPANY LLC,
RIO VISTA MANAGEMENT LLC, RIO
VISTA NORTHVALE, LLC, RIO VISTA
PROPERTIES 690 LLC, RIO VISTA
MEDICAL LLC, RIO VISTA REALTY LLC,
RIO VISTA RENTALS LLC, RIO VISTA
SNOW LLC, JM MAVROUDIS MANAGEMENT
CO., ANNE MAVROUDIS, NEW JERSEY
HEALTH CARE CENTER LLC, 680 MEDICAL
GROUP LLC, ASC PARTICIPANTS LLC,
IMAGING CENTER OF ORADELL LLC,
PRESCRIPTION DISPENSARY OF ORADELL
LLC, LAB TECHNOLOGIES OF ORADELL
LLC, AND URGENT CARE CENTER OF
ORADELL LLC,

     Defendants.

___________________________________________

         Argued November 12, 2013 – Decided March 19, 2014

         Before Judges Yannotti, Ashrafi and Leone.

         On appeal from the Superior Court of New
         Jersey, Chancery Division, Bergen County,
         Docket No. C-230-11.
             Darryl T. Garvin argued the cause for
             appellant William Earnshaw D/B/A Accent on
             Design.

             Stephen P. Sinisi argued the cause for
             respondent Special Fiscal Agent (Law Offices
             of Stephen P. Sinisi, Esq., LLC, attorneys;
             Mr. Sinisi and Robert L. Falkenstern, on the
             brief).

      The opinion of the court was delivered by

LEONE, J.S.C., t/a

      Appellant    William    Earnshaw    appeals      the    orders   of    the

Chancery Division quashing and vacating his writ of execution

and notice of levy to execute a judgment issued by the Law

Division.     We reverse and remand.

                                    I.

      Earnshaw does business as Accent on Design.              Pursuant to a

contract with Rio Vista Properties, LLC (Rio), Earnshaw designed

and installed custom cabinets and countertops for most of the

offices in a medical office building (the Property) in Oradell.

Rio failed to pay invoices from Earnshaw.              Believing Rio to be

the sole owner of the Property, Earnshaw filed suit against Rio

and   John   Mavroudis,   a   managing   agent   for    the   Property.       In

November 2011, the Law Division granted Earnshaw partial summary

judgment for contract damages.           On February 17, 2012, the Law

Division entered a final judgment against Rio in the amount of

$100,918.

                                     2                                 A-2013-12T1
       In fact, the Property was owned 60% by Rio and 40% by New

Jersey Realty Concepts, LLC (NJRC), as tenants in common.                        Rio

and NJRC leased the building to medical tenants whose rents were

collected by Mavroudis.

       Alleging misappropriation of funds, NJRC and others sued

Rio, John Mavroudis, his partner Michael Mavroudis, and others

in the Chancery Division.               On January 9, 2012, the Chancery

Division     judge   removed     John   and     Michael   Mavroudis   (Mavroudis

Defendants) as managing agents for the Property.                       The judge

appointed respondent Steven Sinisi as the Special Fiscal Agent

(SFA), giving him managerial authority over the Property.

       Earnshaw,     now   aware     of       the   Property's    ownership      and

management situation, forwarded the February 17, 2012 judgment

to   the   SFA.      After     the   parties        negotiated    unsuccessfully,

Earnshaw recorded the judgment as a lien.                    The Law Division

issued a writ of execution for $100,918.                  To obtain the 60% of

the rents believed due to Rio, the Sheriff issued a notice of

levy   and    executed     the   writ     on    the    tenants.      The   Sheriff

apparently collected the judgment amount, which is being held in

escrow.

       On June 5, 2012, the SFA filed a motion in the Chancery

action.      After hearing argument from the SFA and Earnshaw, the

Chancery judge issued an order on June 28, 2012, quashing and

                                          3                                A-2013-12T1
vacating the Law Division's writ and the Sheriff's notice of

levy, and requiring the Sheriff to transfer to the SFA the rents

collected from the Property.       Earnshaw sought reconsideration,

which the judge denied on August 29, 2012.           On November 30,

2012, the judge denied a stay, and certified as final the June

28 and August 29 orders.         Earnshaw appealed those orders on

January 10, 2012.1

                                  II.

     Earnshaw argues that the Chancery judge improperly quashed

and vacated the Law Division's writ and levy.      In a rider to the

August 29, 2012 order denying reconsideration, the judge gave

two reasons why the levy was improper.        First, the judge ruled

that the rents collected by the SFA were in custodia legis.

Second, the judge ruled that it was improper for Earnshaw to

levy upon the 60% of the rents due to Rio.

     We address each rationale in turn, hewing to our standard

of   review.   We    recognize   that   the   Chancery   Division   has

discretion in appointing a receiver or special fiscal agent.

See Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C. v.

1
  It is unclear whether the orders were properly certified under
R. 4:42-2.    Given the full briefing of the issues and the
passage of time, we grant leave to appeal those orders nunc pro
tunc under Rule 2:5-6 to avoid any uncertainty.    See Taylor by
Wurgaft v. Gen. Elec. Co., 208 N.J. Super. 207, 211 (App. Div.),
certif. denied, 104 N.J. 379 (1986).

                                   4                          A-2013-12T1
Lowenstein Sandler, P.C., 365 N.J. Super. 241, 249 (App. Div.

2003); see also Roach v. Margulies, 42 N.J. Super. 243, 246

(App. Div. 1956).   However, "[a] trial court's interpretation of

the law and the legal consequences that flow from established

facts are not entitled to any special deference."               Manalapan

Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995).             Because

this appeal poses issues of law, we review the matter de novo.

See, e.g., Cameron v. Ewing, 424 N.J. Super. 396, 401 (App. Div.

2012).2

                                III.

     As the judge noted, "'[i]t is a general rule that money or

other property in the hands of an officer of a court is regarded

as being in custodia legis, and in consequence ordinarily cannot

be   reached   by   execution   in       the   absence   of   legislative

authority.'"    Naglieri v. Trabattoni, 20 N.J. Super. 173, 176

(App. Div. 1952) (quoting Fredd v. Darnell, 107 N.J. Eq. 249,

253 (Ch. 1930)); see Culp v. Culp, 242 N.J. Super. 567, 572 (Ch.

Div. 1990).    The question here is whether the rents due to Rio

were in custodia legis.

2
  Because "'the substantive issues . . . and the basis for the
motion   judge's   ruling   on  the   [motion   to   quash] and
reconsideration motion[] was the same,'" we consider the merits
of Earnshaw's appeal.   See Potomac Aviation, LLC v. Port Auth.
of N.Y. & N.J., 413 N.J. Super. 212, 222 (App. Div. 2010)
(quoting Fusco v. Bd. of Educ. of Newark, 349 N.J. Super. 455,
461 (App. Div.), certif. denied, 174 N.J. 544 (2002)).

                                     5                           A-2013-12T1
     "Property is considered to be in custodia legis when it is

'in the custody of the law.'"       Wilzig v. Sisselman, 209 N.J.

Super. 25, 31 (App. Div.), certif. denied, 104 N.J. 417 (1986).

          Thus, under our law, when a complaint is
          filed for the dissolution of an entity and a
          receiver is appointed thereunder, "such
          receiver becomes vested with title to the
          property . . . from the date of the filing
          of the bill." The property of the entity is
          thereafter   in   custodia   legis    and   the
          receiver's possession is considered to be
          that of the appointing court.      Implicit in
          any order establishing a custodia legis
          status,   through   the   appointment    of   a
          receiver, is the fact that the property
          becomes inalienable without the knowledge
          and consent of the court.

          [Ibid. (citations omitted).]

     "Accordingly, the mere appointment of a receiver operates

to place property in custodia legis and automatically prohibits

its sale in the absence of approval of the court."      Id. at 32.

Indeed, "[t]he word 'receiver' normally connotes a person or

entity who takes title to property in custodia legis."        In re

Farnkopf, 363 N.J. Super. 382, 394 n.9 (App. Div. 2003); see

Wilzig, supra, 209 N.J. Super. at 32 (noting that "case law

links the custodial status of the property with the function of

the receiver").3

3
  There are several types of receivers. For example, a statutory
receiver serves to "liquidate the corporation"; a custodial
receiver serves "to maintain the status quo for a definite
                                                     (continued)

                                6                           A-2013-12T1
    "'It is well recognized that a court of equity has inherent

power in a proper case to appoint a receiver for a corporation

on the ground of gross or fraudulent mismanagement by corporate

officers       or    gross    abuse       of   trust    or    general     dereliction         of

duty.'"        Ravin, supra, 365 N.J. Super. at 249 (quoting Roach,

supra, 42 N.J. Super. at 245).                      However, the appointment of a

receiver is "'an extraordinary remedy,'" ibid., and can have the

effect    of    "injuring          the    business      in   its    relations      with       the

public and its" customers, Roach, supra, 42 N.J. Super. at 246.

    Accordingly,             the    Chancery        Division       may    not   appoint        a

receiver without meeting certain procedural requirements.                                     For

example,       "an    order        appointing       a   statutory        receiver       for    a

corporation         shall    give        the   stockholders        and   creditors       leave

. . . to show cause why the receiver shall not be continued."

R. 4:53-1.           The receiver must file an inventory and periodic

accounts, which must be audited and approved by the court.                                     R.

4:53-7.        A court may appoint a receiver "only for the short

period    of    time     required         to    protect      assets      pending    a    final

(continued)
period of time, usually only during the pendency of the
litigation"; and a rent receiver serves "to protect the
mortgagee's   interests   by   imposing   a   court-supervised,
disinterested person to collect the rents and pay expenses
pending the ultimate disposition of the mortgaged premises."
Kaufman v. 53 Duncan Investors, L.P., 368 N.J. Super. 501, 506
(App. Div. 2004).

                                                7                                   A-2013-12T1
resolution     of     litigation    or    a     dissolution     of       the    business

enterprise."        Kassover v. Kassover, 312 N.J. Super. 96, 100

(App. Div. 1998).

      It is undisputed that the Chancery Division here did not

appoint a receiver, but instead took the less "drastic action"

and   "less    onerous      expedient"    of     appointing     a    special       fiscal

agent.     See      Roach,    supra,     42    N.J.   Super.    at       245.      "[T]he

appointment      of     a    'special     fiscal      agent'     to       oversee     the

disbursements of a solvent corporation [is] a 'pendente lite

device . . . contrived to avoid more stringent measures'" such

as appointment of a receiver.                 Kassover, supra, 312 N.J. Super.

at 100 (quoting Roach, supra, 42 N.J. Super. at 246).                           Here, as

in Roach, "in an effort to refrain from hindering the corporate

business      operations      and   at    the     same   time       to    afford     some

protection     to     plaintiff,    the   fiscal      agent    with      circumscribed

powers was appointed."         See Roach, supra, 42 N.J. Super. at 246.

      The January 9, 2012 order transferred from the Mavroudis

Defendants to the SFA "managerial authority over the business

operations and financial affairs" of the Property, "including

(but not limited to) collection of rent, additional rent or

other revenues, payment of bills or other expenditures within

the ordinary course of business," hiring of employees, entering

into contracts, buying supplies, and making transactions.                             The

                                          8                                     A-2013-12T1
order stated that the SFA would report to the court only "from

time to time, as he shall deem fit."                    No time limit was placed

on the SFA's appointment.

       The order did not purport to place property in custodia

legis.    Cf. Hyman v. Muller, 1 N.J. 124, 127 (1948) (noting that

the order appointing a receiver provided the assets he received

were thereafter to "'be considered as in custodia legis'").                            Nor

did the order require the inventory and periodic accounts needed

for the court to monitor property in the court's custody.                              The

order    did    not       require   the   court's      approval    for   the    sale    of

property.       Nor did it include the other procedural protections

attending a receivership, such as notice to creditors with an

opportunity to object.               Thus, there is nothing in the order

endowing the SFA with the powers of a receiver, including a

receiver's       quintessential        protection       of   property     in    custodia

legis.

       In the rider to the August 29, 2012 order, the judge stated

that because the judge appointed the SFA, the SFA acts as a

judicial officer and therefore holds the property in custodia

legis.         The    judge      explained   that      "[e]quitable      remedies      are

distinguished for their flexibility, their unlimited variety,

[and] their adaptability to circumstances."                        Roach, supra, 42

N.J.    Super.       at    246   (citation       and   quotation    marks      omitted).

                                             9                                  A-2013-12T1
However,    the    equitable     remedy         chosen    by   the    judge    –     the

appointment of a special fiscal agent – is differentiated from a

receiver    who   holds    the   property        in   custodia    legis   precisely

because an SFA has "circumscribed powers," provides only "some

protection," and is a less "drastic action" than appointing a

receiver.    See id. at 245-46.            Notably, neither the parties nor

we have found any authority stating that a special fiscal agent

holds property in custodia legis.                 Thus, we find the rents due

to Rio were not held in custodia legis.

    In     any    event,   "'the   test         of    immunity   of    property       in

custodia legis may in general be said to be whether substantial

confusion   or    embarrassment       to    the      initial   jurisdiction        would

result from the enforcement of process against the property by

another tribunal.'"         Naglieri, supra, 20 N.J. Super. at 176

(quoting Fredd, supra, 107 N.J. Eq. at 253); accord Culp, supra,

242 N.J. Super. at 572-73.         Here, the judge stated that the SFA

was appointed because there were allegations that the Mavroudis

Defendants were misappropriating funds.                  As in Roach, a SFA was

appointed to ensure some protection to the parties from further

misappropriation.          Allowing    the        collection     of   debt    through

execution of judgment does not thwart the goal of preventing

managerial misappropriation.

                                           10                                 A-2013-12T1
      The   judge    also      stated     that    "allowing     Earnshaw     the

opportunity to be prioritized as a creditor of Rio via the levy"

would "deprive the SFA of utilizing his Court-appointed power to

decide the order that the creditors should be paid in," and

would "deprive this Court of jurisdiction over the corporation

and lead to the Court's substantial embarrassment."

      However, nothing in the judge's January 9, 2012 order gives

the   SFA   the   power   to   decide     that    creditors    shall   be   paid

contrary to the priorities established by law.                The order simply

gives the SFA the authority for "payment of bills and other

expenditures within the ordinary course of business."                    We see

nothing indicating that paying Earnshaw's invoices, or obeying a

court-ordered     writ    of    execution,       falls   outside   the      SFA's

authority or the ordinary course of business.                 Payment of those

bills has not been shown to deprive the court of jurisdiction or

cause substantial embarrassment.              Thus, even if the rents were

in custodia legis, they could still be levied upon by Earnshaw.

                                        IV.

      The judge's rider to the August 29, 2012 order also stated

that the writ and levy were quashed because Earnshaw improperly

sought to levy upon the 60% of the rents due to Rio.                   This was

not a proper basis to quash or vacate the writ of lien, even

assuming that the SFA could bring such a challenge to the levy

                                        11                             A-2013-12T1
before the Chancery judge, rather than the Law Division which

issued the writ of execution.

    The judge believed that Rio would not have possession of

the rents until after the SFA made the Property profitable, at

which point Rio would receive surplus funds that Earnshaw could

levy upon.      Indeed, in a rider to the June 28, 2012 order

quashing the writ and levy, the judge instructed the SFA not to

distribute any funds to Rio, and to file a report with the court

detailing whether he had any "surplus funds."               However, neither

the judge nor the SFA anticipated there would ever be surplus

funds.

    In any event, when the writ was executed, nothing in the

judge's     January   9,   2012       order    prohibited    the    SFA   from

distributing any funds to Rio.              The order transferred from the

Mavroudis    Defendants    to   the   SFA     the   managerial   authority   to

collect rents and pay bills, but it did not bar the SFA from

paying to Rio or NJRC any monies due them as the owners of the

Property.

    Moreover, the debts represented by the rental payments were

the property of Rio and NJRC, with 60% belonging to Rio and 40%

to NJRC.     We note "the oft-stated general rule that a test of

liability to garnishment or execution 'is whether it is the

subject of assignment.'"        Cameron, supra, 424 N.J. Super. at 406

                                       12                             A-2013-12T1
(citation       omitted).        Here,    the     right   to    receive    rents   was

capable of assignment by Rio, and thus was open to execution.

See Gonzalez v. Wilshire Credit Corp., 207 N.J. 557, 565 n.2

(2011) (noting that "'[t]he interest of a tenant in common may,

absent some contractual undertaking, be transferred without the

consent    of    the    [other      co-tenant].'"     (citation       omitted));    see

also Bauer v. Migliaccio, 235 N.J. Super. 127, 138 (Ch. Div.

1989).

      The judge presumed that Earnshaw's writ of execution could

reach only "surplus funds," that is, the amount of the rents

remaining       after   payment      of   other    creditors.         However,     "[a]

judgment    creditor      is     entitled    to    obtain      execution   against    a

debtor's 'debts' as well as earned income, trust fund income,

and profits."          Cameron, supra, 424 N.J. Super. at 403 (quoting

N.J.S.A. 2A:17-50).            The rents here are debts owed to Rio and

NJRC.     "After a levy upon a debt due or accruing to the judgment

debtor from a third person, . . . the court may . . . direct the

debt, to an amount not exceeding the sum sufficient to satisfy

the     execution,      to     be    paid    to     the     officer     holding     the

execution[.]"       N.J.S.A. 2A:17-63.

      The judge stated that Rio "does not have the necessary

possession of the funds in the form of the rents to allow levy,"

because "[t]here is great uncertainty that Rio will ever receive

                                            13                               A-2013-12T1
rental    income    from   the    property        since    a     foreclosure        action

against the property has been initiated."                        Although the bank

holding the mortgage on the Property had commenced foreclosure

proceedings,      foreclosure     had      not    yet     occurred      when    Earnshaw

obtained the writ and levy.                Moreover, the bank had deferred

enforcement of an assignment of rents provision of the mortgage,

and had made no application for a rent receiver.                     Therefore, the

rents were still Rio's property at the time Earnshaw's writ was

executed.

    The judge cited Cameron for the proposition that "'[a] debt

which is uncertain and contingent, in the sense that it may

never    become    payable,      is   not       subject    to    levy    and        sale.'"

Cameron, supra, 424 N.J. Super. at 406 (quoting Cohen v. Cohen,

126 N.J.L. 605, 610 (Sup. Ct. 1941)).                     "However, debts may be

subject     to    execution   'if     liquidated          and    certain       in    their

existence[.]'"        Ibid.      (citation        omitted).        Here,       like    the

reverse   mortgage     payments       in    Cameron,       the    tenants'      "payment

obligation is certain and currently payable."                     Ibid.; cf. Cohen,

supra, 126 N.J.L. at 610 (holding a widow's right to collect a

death benefit under her husband's life insurance policy if she

were alive on a date in the future was too uncertain to be

subject to levy).

                                           14                                   A-2013-12T1
    Our ruling is "consistent with the general policy favoring

enforcement of judgments."    See Cameron, supra, 424 N.J. Super.

at 406.     "'It is the general policy of the law to lend the

creditor all reasonable assistance for the enforcement of his

claim, especially against a debtor who, though possessed of the

means to pay, seeks to evade his obligation.'"          Ibid. (citation

omitted).   Here, Earnshaw had obtained a judgment from the Law

Division.    He had a right to enforcement of his claim against

Rio's rental income, despite the SFA's preference to pay other

creditors who had not yet attained the priority of a judgment.

See R. 1:13-8.

    Accordingly,   we   reverse   and   remand   with   instructions   to

release the escrowed funds to satisfy Earnshaw's judgment in

accordance with this opinion.     We do not retain jurisdiction.

                                  15                            A-2013-12T1