Court Opinion

ID: 4493924
Source: CourtListenerOpinion
Date Created: 2020-01-22 15:08:00.44117+00
Date Added: 2024-06-11T09:24:54.576542
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                         SUPERIOR COURT OF NEW JERSEY
                                                         APPELLATE DIVISION
                                                         DOCKET NO. A-1802-18T1

PIO a/k/a PETER TARQUINIO,

          Plaintiff-Respondent,

v.

CLAUDIO TARQUINIO, TAMMY
TARQUINIO, EVEX, INC., EVEX
ANALYTICAL INSTRUMENTS,
INC., 2486 ROUTE 206, LLC,
CTTK, LLC, and EVEXGLOBAL,
LLC,

     Defendants.
_______________________________

                    Argued October 10, 2019 – Decided January 22, 2020

                    Before Judges Koblitz, Whipple and Gooden Brown.

                    On appeal from the Superior Court of New Jersey,
                    Chancery Division, Somerset County, Docket No. C-
                    012069-11.

                    Douglas J. McGill argued the cause for appellants
                    Drinker Biddle & Reath LLP, Walter J. Fleischer, Jr.,
                    and Paul G. Nittoly (Webber McGill LLC, attorneys;
                    Douglas J. McGill, of counsel and on the briefs).
            Douglas A. Stevinson argued the cause for respondent
            (Windels Marx Lane & Mittendorf, LLP, attorneys;
            Douglas A. Stevinson, of counsel and on the brief).

PER CURIAM

      This appeal stems from a priority dispute between judgment creditors,

Drinker Biddle & Reath LLP, Walter J. Fleischer, Jr., and Paul G. Nittoly

(collectively, the DBR creditors) on one side, and Pio a/k/a Peter Tarquinio

(Peter)1 on the other side. The DBR creditors and Peter each obtained judgment

liens in separate lawsuits against Claudio and Tammy Tarquinio, a married

couple. Peter's judgments were obtained in the underlying lawsuit. The funds

at the heart of the appeal are sale proceeds from real property owned jointly by

Claudio and Tammy. Claudio filed for bankruptcy and although Tammy was

not a party to the bankruptcy proceeding, the bankruptcy court permitted

Claudio's Bankruptcy Trustee to sell Tammy's interest in the property under

applicable bankruptcy law. Pursuant to the bankruptcy court's order, following

the closing, Tammy's share of the sale proceeds was held in escrow by a title

insurance company pending resolution of the priority dispute by a court or the

parties.

1
  We refer to the Tarquinios by their first names to avoid any confusion caused
by their common surname and intend no disrespect by this informality.
                                                                        A-1802-18T1
                                       2
      Although Peter's judgments were obtained after the DBR creditors', Peter

levied on Tammy's share and filed a turnover motion for the funds before the

DBR creditors. Over the objection of the DBR creditors, the trial court granted

Peter's motion and denied the DBR creditors' cross-motion for a turnover order.

The DBR creditors now appeal, raising the following points for our

consideration:

            I.  [PETER]'S PURPORTED LEVY ON THE
            PROCEEDS     WAS  LEGALLY   DEFECTIVE
            BECAUSE THE PROCEEDS IN THE HANDS OF
            THE TITLE COMPANY WERE IN CUSTODIA
            LEGIS.

                  A.  THE TITLE COMPANY WAS THE
                  TRUSTEE'S AGENT, AND THEREFORE
                  HELD THE PROCEEDS AS AN
                  OFFICER OF THE BANKRUPTCY
                  COURT.

                  B.   NEW JERSEY LAW PROHIBITS A
                  CREDITOR WITH A LIEN AGAINST
                  REAL PROPERTY FROM LEVYING ON
                  THE PROCEEDS OF SUCH PROPERTY
                  AFTER THE PROPERTY AND/OR THE
                  PROCEEDS ARE IN THE POSSESSION
                  OF A COURT OFFICER.

            II. THE  COURT     BELOW    ERRED   IN
            CONCLUDING THAT A LACK OF CONFUSION OR
            EMBARRASSMENT VIS-À-VIS IT AND THE
            BANKRUPTCY COURT SUPPORTED A FINDING
            THAT THE PROCEEDS WERE IN CUSTODIA

                                                                       A-1802-18T1
                                      3
             LEGIS, OR THAT THE PROCEEDS WERE NOT
             OTHERWISE IMMUNE FROM LEVY.

             III. THE   PROCEEDS     RETAINED    THE
             CHARACTER OF REALTY FOR DISTRIBUTION
             PURPOSES, AND [PETER]'S PURPORTED LEVY
             WAS NOTHING MORE THAN AN INEFFECTUAL
             EFFORT TO PERFECT HIS PRE-EXISTING LIEN
             AGAINST THE PROPERTY RATHER THAN AN
             EFFORT TO ESTABLISH A NEW LIEN THAT
             COULD BE PERFECTED BY POSSESSION.

             IV. ASSUMING, [ARGUENDO], THAT [PETER]'S
             PURPORTED LEVY COULD HAVE HAD LEGAL
             EFFECT, THE LEVY DID NOT ATTACH TO THE
             PROCEEDS BECAUSE TAMMY HAD NO
             INTEREST IN THE PROCEEDS.

We reject these arguments and affirm.

                                        I.

       The following facts and procedural history are largely undisputed. In the

underlying lawsuit, on October 14, 2016, Peter obtained an amended judgment2

for compensatory and punitive damages against his brother, Claudio, and sister-

in-law, Tammy,3 totaling $3,205,259,4 which judgment was docketed on

2
  The judgment was amended from an earlier judgment entered on September
27, 2016, which mistakenly omitted one of the parties.
3
   The judgment was also entered against EvexGlobal, LLC, and CTTK, LLC,
jointly and severally.
4
    We round all monetary amounts to the nearest dollar.
                                                                        A-1802-18T1
                                        4
November 21, 2016.      The lawsuit stemmed from Claudio's and Tammy's

fraudulent misconduct in the operation of several businesses the three owned

and operated together. Subsequently, on December 5, 2016, and March 10,

2017, separate judgments were entered in favor of Peter against Tammy and

Claudio, respectively, in the amount of $356,063 each, for counsel fees incurred

by Peter in the underlying lawsuit.        We affirmed the judgments in an

unpublished decision issued on September 19, 2018. Tarquinio v. Tarquinio,

Nos. A-1116-16 and A-3902-16 (App. Div. Sep. 19, 2018).

      Previously, on April 1, 2016, the DBR creditors had obtained a judgment

against Claudio and Tammy in the amount of $172,748 in an unrelated lawsuit.

The judgment was docketed on April 14, 2016 and remained unsatisfied. After

Peter's October 14, 2016 judgment was entered and Peter's counsel fee

application was pending, Claudio filed a petition for bankruptcy protection on

October 26, 2016, with the United States Bankruptcy Court.5 In his bankruptcy

filing, among his assets, Claudio listed real property located in Princeton (the

Princeton property), owned by Claudio and Tammy as tenants by the entirety.

Although Tammy did not file for bankruptcy protection, on November 20, 2017,

5
 Claudio initially filed under Chapter 11 of the United States Bankruptcy Code,
but his case was subsequently converted to a liquidation proceeding under
Chapter 7 pursuant to 11 U.S.C. §1112(b).
                                                                        A-1802-18T1
                                       5
the bankruptcy court granted partial summary judgment to Claudio's Bankruptcy

Trustee, permitting the Trustee to partition and sell both Claudio and Tammy's

interest in the Princeton property pursuant to 11 U.S.C. § 363(h).

      After the Trustee executed a contract for the sale of the Princeton property,

on July 13, 2018, the bankruptcy court entered an amended order (the

bankruptcy order) with input from the parties in interest, including Peter and the

DBR creditors, directing that Claudio's one-half of the net sale proceeds be

turned over to the bankruptcy estate, while Tammy's one-half interest would be

held in escrow by a title insurance company for distribution upon resolution of

the priority dispute between the DBR creditors' and Peter's judgment liens .

Specifically, in pertinent part, the bankruptcy court

                   ORDERED that payment to clear any judgment
            liens against the Princeton [p]roperty, including
            judgment liens rooted in judgments respectively held
            by the DBR [creditors] and Peter . . . jointly and
            severally against [Claudio] and Tammy . . . , shall be
            paid exclusively from Tammy['s] . . . interest in the net
            proceeds of sale of the Princeton [p]roperty . . . and no
            amount shall be paid on account of said judgment liens
            from the estate's interest in the proceeds of sale of the
            Princeton [p]roperty until the liquidation of [Claudio's]
            estate in the normal course or as otherwise directed in
            a further order of the [c]ourt; and it is further

                  ORDERED that in connection with the relief set
            forth in the preceding paragraph, the title insurance
            company (the [t]itle [c]ompany[]) handling the closing

                                                                           A-1802-18T1
                                        6
            of sale of the Princeton [p]roperty shall hold in escrow
            any and all proceeds attributable to Tammy['s] . . .
            interest in the Princeton [p]roperty (the [e]scrow
            [p]roceeds[]) until such time [that] either an agreement
            is reached between the DBR [creditors] and Peter . . . ,
            or this [c]ourt or any other court of competent
            jurisdiction has made a determination with respect to
            the priority between the judgment liens of the DBR
            [creditors] and Peter . . . , at which time the [t]itle
            [c]ompany shall distribute the [e]scrow [p]roceeds to
            the DBR [creditors] and Peter . . . in accordance with
            the agreed upon or determined priority of their
            respective judgment liens, and no amount shall be
            distributed or released by the [t]itle [c]ompany to
            Tammy . . . until and unless the judgment liens have
            been satisfied; and it is further

                  ORDERED that the [t]itle [c]ompany shall not
            release any of the [e]scrow·[p]roceeds to any third
            parties unless directed by an order of this [c]ourt or any
            other court of competent jurisdiction, except as
            provided herein[.]

      On September 6, 2018, Claudio's Bankruptcy Trustee consummated the

sale of the Princeton property. The net sale proceeds attributable to Tammy's

one-half interest totaled $263,951, and, pursuant to the bankruptcy order, was

held in escrow by Greater New Jersey Title Agency, the title company selected

by the buyer for the closing. Upon obtaining the name of the title company, in

a September 26, 2018 letter, Peter requested the Middlesex County Sheriff to

reserve a levy upon Tammy's share of the funds held by Greater New Jersey

Title Agency. Accompanying the letter, Peter provided the writ of execution

                                                                         A-1802-18T1
                                        7
previously issued by the trial court on March 28, 2017, ordering the Sheriff to

take possession of all property owned by Tammy in order to satisfy his duly

docketed judgment. On October 11, 2018, the Sherriff effectuated the levy on

Greater New Jersey Title Agency and notified all interested parties accordingly.

      On October 19, 2018, Peter filed a motion for turnover of the levied funds

to partially satisfy his judgments. In support, Peter asserted his judgment liens

should be given first priority over other non-levying judgment creditors because

he was the first to serve the title company with a writ of execution and request

that the Sheriff levy upon Tammy's share of the Princeton property's sale

proceeds. On November 1, 2018, the DBR creditors opposed Peter's motion and

cross-moved for a turnover order. In support, the DBR creditors asserted the

sale proceeds should be turned over to them because their judgment was

docketed prior to Peter's. Additionally, the DBR creditors claimed that the sale

proceeds were in custodia legis because the title company was acting as an agent

of Claudio's Bankruptcy Trustee. As such, the DBR creditors asserted the

proceeds "remain[ed] subject to the [b]ankruptcy [c]ourt's jurisdiction[,]"

thereby invalidating Peter's levy. Even if the sale proceeds were not in custodia

legis, the DBR creditors maintained Peter failed to "establish[] that he made any

effort to locate and levy upon any of Tammy's personal property before levying

                                                                         A-1802-18T1
                                       8
on the [sale] proceeds, which [were] deemed to be real property for the purposes

of distribution."

      Peter countered that he took considerable steps to locate Tammy's assets.

In support, Peter submitted Tammy's deposition testimony in which she testified

that she had no personal assets that Peter could attach to satisfy the judgmen t.

Further, Peter asserted he was "not seeking to enforce his lien against real

property," and thus, was "not required to exhaust Tammy's personal property

before levying upon the sale[] proceeds." Additionally, Peter asserted the funds

were not in custodia legis because the sale proceeds were never paid into court

or held by a court officer but were instead held in escrow by a title company. In

a supporting certification, Claudio's Bankruptcy Trustee averred that "neither

[he] nor [Claudio's] bankruptcy estate [had] an interest in Tammy['s] . . . interest

in the proceeds of sale of the [Princeton] [p]roperty."

      Following oral argument, on November 29, 2018, Judge Margaret

Goodzeit granted Peter's motion and denied the DBR creditors' cross-motion. In

a written statement of reasons accompanying the orders, the judge noted that

"[b]y operation of law, the docketing of [the] DBR[] [creditors'] judgment and

Peter's judgment constituted liens in favor of [the] DBR [creditors] and Peter,

                                                                            A-1802-18T1
                                         9
respectively, on all real property within the State . . . owned by any of the

judgment debtors." The judge explained that:

                  R[ule] 4:59-1 provides that the process to enforce
            a judgment shall be by writ of execution unless the
            court otherwise orders. Under New Jersey law, the
            prerequisite to entry of a turnover order is the issuance
            of a writ of execution for the purpose of a levy.
            N.J.S.A. 2A:18-27. The turnover order is a mechanism
            that directs a garnishee holding the debtor's funds to
            pay those funds over to creditors rather than to the
            debtor. See N.J.S.A. 2A:17-63. . . .

                  Priority among creditors is determined by order
            of levy of execution or the date of entry of judgment if
            no execution was issued. See Burg v. Edmondson, 111
            N.J. Super. 82, 85 (Ch. Div. 1970). Further, "a junior
            creditor who first levies upon the property of the debtor
            is accorded priority over a senior creditor who has not
            levied." Swift & Co. v. First Nat. Bank of Hightstown,
            114 N.J. Eq. 417 (Ch. 1933); Vineland Savings & Loan
            Assn. v. Felmey, 12 N.J. Super. 384 (Ch. Div. 1950).

      The judge acknowledged that the facts in the case were "not in dispute[,]"

and posited that "[t]he issue before the [c]ourt [was] the order of priority of the

[two] judgment creditors, DBR and Peter." The judge concluded that Peter had

priority over the DBR creditors because although Peter's judgment was entered

after the DBR creditors', "[Peter] was first in time to levy upon the proceeds[.]"

In rejecting the DBR creditors' contention that the proceeds were in custodia

legis and therefore immune from Peter's levy, the judge explained that property

                                                                           A-1802-18T1
                                       10
in custodia legis was immune from levy to avoid interference, confusion or

embarrassment occasioned by one tribunal enforcing process against property

under the jurisdiction of another tribunal. However, here, "the language of the

[Bankruptcy] [o]rder does not indicate that the proceeds are held in custodia

legis, despite the existence of several published cases upon which the [o]rder

could have been modeled" in order to dictate a contrary interpretation.

      Further,

            the plain language of the Bankruptcy . . . [o]rder
            indicates that it made no determination as to the order
            of priorities between [the] DBR [creditors] and Peter.
            Instead, the [Bankruptcy] [o]rder states, with specific
            reference to [the] DBR [creditors] and Peter . . . , that
            a[n] unnamed title company would hold the proceeds in
            escrow until "either an agreement is reached between
            the DBR [creditors] and Peter . . . , or [the bankruptcy]
            [c]ourt or any other court of competent jurisdiction has
            made a determination with respect to the priority
            between the judgment liens of the DBR [creditors] and
            Peter . . . ."

                  Given that the Bankruptcy . . . [o]rder specifically
            contemplated that another court may make a
            determination as to priority and that the bankruptcy
            trustee has expressly disclaimed any interest in
            Tammy's one-half of the proceeds, it is clear that Peter's
            levy does not interfere with "orderly administration by
            the primary tribunal." [Fredd v. Darnell, 107 N.J. Eq.
            249, 253 (Ch. 1930)].

                                                                          A-1802-18T1
                                       11
      Additionally, the judge dismissed the DBR creditors' assertion that the

funds were in custodia legis because, as an agent of Claudio's bankruptcy

trustee, the title company was "an officer of the [c]ourt." Instead, relying on the

bankruptcy order and the applicable HUD-1 statement, the judge determined

"the role of the title company" was that of a "settlement agent" acting "in the

normal course of selling . . . property." According to the judge, "[m]erely

directing the settlement agent to hold the funds pending further determination

does not make it an officer of the court."

      The judge also described the DBR creditors' argument that the sale

proceeds retained "the legal character of real property, as opposed to personal

property," as "legal fiction." However,

            even if, [arguendo], Tammy's share of the proceeds is
            to be considered as real property, the argument only
            succeeds if [Peter] did not make a good faith effort to
            determine if Tammy had personal property prior to
            levying upon the proceeds. In the case at bar, Tammy
            appeared for a deposition and testified that she had no
            assets capable of being levied. . . . [T]he [c]ourt finds
            that Peter has made a good faith effort to locate
            Tammy's personal property.

                                        II.

      On appeal, the DBR creditors renew the arguments rejected by the judge,

primarily arguing that Tammy's one-half share of the Princeton property's sale

                                                                           A-1802-18T1
                                       12
proceeds was held by the title company in custodia legis and was therefore

"immune from [Peter]'s levy."       While we recognize that "[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. of Manalapan, 140 N.J. 366, 378 (1995), and are instead reviewed de

novo, we affirm substantially for the reasons articulated by Judge Goodzeit in

her sage statement of reasons. We add the following comments.

      "Property is considered to be in custodia legis when it is 'in the custody of

the law.'" N.J. Realty Concepts, LLC v. Mavroudis, 435 N.J. Super. 118, 124

(App. Div. 2014) (quoting Wilzig v. Sisselman, 209 N.J. Super. 25, 31 (App.

Div. 1986)). In New Jersey, "[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." Id. at 123-24 (alteration in original) (quoting Naglieri v.

Trabattoni, 20 N.J. Super. 173, 176 (App. Div. 1952)). "[T]he 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." Id. at 127

(quoting Naglieri, 20 N.J. Super. at 176). "The rationale of the rule is 'based

                                                                           A-1802-18T1
                                       13
upon a necessity, incident to orderly judicial procedure, for any court which has

acquired primary jurisdiction over property to continue the exercise of that

jurisdiction free from embarrassment or conflicts with other courts arising from

other claims against the same property.'" Culp v. Culp, 242 N.J. Super. 567, 572

(Ch. Div. 1990) (quoting Fredd, 107 N.J. Eq. at 253).

      Here, Claudio's Bankruptcy Trustee was appointed as an officer of the

bankruptcy court and thereby served as an agent of Claudio's estate and

creditors. See Kernan v. One Wash. Park Urban Renewal Assocs., 154 N.J. 437,

452-53 (1998) ("Numerous cases have recognized that a trustee is the agent for

the bankruptcy court and for creditors."). However, the record does not support

the DBR creditors' contention that the title company served as the agent of

Claudio's bankruptcy trustee. As Judge Goodzeit recognized, the bankruptcy

order contains no provision mandating, or even suggesting, that the funds were

to be held in custodia legis. Moreover, the bankruptcy order does not provide

for, nor does the record reflect, any sort of accounting procedure that would be

required of a court officer holding funds in custodia legis. See Mavroudis, 435

N.J. Super. at 126 (holding "that a special fiscal agent [did not] hold[] property

in custodia legis" because the order appointing the agent "did not purport to

                                                                          A-1802-18T1
                                       14
place property in custodia legis[,]. . . [n]or did the order require the . . . periodic

accounts needed for the court to monitor property in the court's custody .").

      Further, Claudio's Bankruptcy Trustee expressly disclaimed that Claudio's

estate had any interest in the funds held by the title company. Additionally, the

record does not reveal any sort of control or connection by and between

Claudio's Bankruptcy Trustee and the title company, which was selected and

paid by the Princeton property's buyer.         Such control is a prerequisite to

establishing an agency relationship. See Kernan, 154 N.J. at 453 ("It is well-

established that '[a]n agency relationship is created when one party consents to

have another act on its behalf, with the principal controlling and directing the

acts of the agent.'" (alteration in original) (quoting Sears Mortg. Corp. v. Rose,

134 N.J. 326, 337 (1993))). Therefore, we agree with Judge Goodzeit that the

title company was not the agent of Claudio's Bankruptcy Trustee, and, as such,

was not an officer of the bankruptcy court. Accordingly, Tammy's share was

not held in custodia legis by the title company.

      Relying primarily on Chancery Division cases, the DBR creditors

alternatively contend that once the bankruptcy court assumed subject matter

jurisdiction over Tammy's interest in the Princeton property in order to sell it as

part of Claudio's liquidation proceedings, "the relative priorities of exis ting

                                                                               A-1802-18T1
                                         15
judgment lienholders with respect to the [Princeton] [p]roperty and its proceeds

became fixed." We agree that the Princeton property was initially subject to the

bankruptcy court's jurisdiction as a result of Claudio listing it among his assets.

However, once Tammy's share was partitioned pursuant to applicable law, and

both Claudio's and Tammy's one-half interests were sold, Tammy's share ceased

to be under the jurisdiction of the bankruptcy court.

      Equally unavailing is the DBR creditors' contention that the sale proceeds

retained the legal character of real property subject to their first-priority lien.

Indeed, once the Princeton property was sold pursuant to the bankruptcy order,

the DBR creditors' lien "with respect to the sold property" was "completely

extinguished" under long-established New Jersey law. New Brunswick Sav.

Bank v. Markouski, 123 N.J. 402, 413 (1991). At that juncture, "[i]rrespective

of when a judgment creditor obtains or dockets a judgment, the creditor who

levies first has priority over all nonlevying judgment creditors[,]" and "even a

junior levying creditor" has "priority over all senior nonlevying judgment

creditors in the distribution of the proceeds . . . ." Ibid. (citing N.J.S.A. 2A:17-

39). See also N.J.S.A. 2A:17-15.

      Here, by levying upon the sale proceeds before the DBR creditors, Peter

gained first priority over the earlier DBR creditors' judgment.          Moreover,

                                                                            A-1802-18T1
                                        16
contrary to the DBR creditors' assertion, Tammy maintained an undeniable

interest in the funds as evidenced by the bankruptcy order's provision that "no

amount shall be distributed or released by the [t]itle [c]ompany to Tammy . . .

until and unless the judgment liens have been satisfied[.]"          See Terry v.

Owatonna Canning Co., 119 N.J.L. 455, 457 (1938) (explaining that a "levy

under a writ of attachment . . . 'operates only upon such rights in the property as

the debtor has at the time of the levy'") (quoting 6 C.J. 242)). To the extent we

have not addressed a particular argument, it is because either our disposition

makes it unnecessary or the argument was without sufficient merit to warrant

discussion in a written opinion. R. 2:11-3(e)(1)(E).

      Affirmed.

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                                       17