Court Opinion

ID: 6215647
Source: CourtListenerOpinion
Date Created: 2022-02-07 15:06:49.786903+00
Date Added: 2024-06-11T08:57:05.070901
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                 APPROVAL OF THE APPELLATE DIVISION

                                     SUPERIOR COURT OF NEW JERSEY
                                     APPELLATE DIVISION
                                     DOCKET NO. A-4453-19

WOODMONT PROPERTIES,
LLC,
                                       APPROVED FOR PUBLICATION
        Plaintiff-Appellant,
                                                February 7, 2022

v.                                            APPELLATE DIVISION

TOWNSHIP OF WESTAMPTON,
TOWNSHIP COMMITTEE
OF THE TOWNSHIP OF
WESTAMPTON, T.D. BANK,
N.A., COBA, INC., and MRP
INDUSTRIAL NE, LLC,1

     Defendants-Respondents.
_____________________________

              Argued January 19, 2022 – Decided February 7, 2022

              Before Judges Fisher, DeAlmeida, and Smith.

              On appeal from the Superior Court of New Jersey, Law
              Division, Burlington County, Docket No. L-2494-18.

              Michael J. Canning argued the cause for appellant
              (Giordano, Halleran & Ciesla, attorneys; Michael J.
              Canning and Afiyfa H. Ellington, on the briefs).

              Matthew R. Tavares argued the cause for respondents
              Township of Westampton and Township Committee of
              the Township of Westampton (Rainone Coughlin
1
    Improperly pled as MRP Industrial, LLC.
             Minchello, LLC, attorneys; Matthew R. Tavares, of
             counsel and on the brief).

             Jennifer A. Harris argued the cause for respondents
             T.D. Bank, N.A. and COBA, Inc. (Brown & Connery,
             LLP, attorneys; Paul Mainardi and Jennifer A. Harris,
             on the brief).

             William J. Groble argued the cause for respondent MRP
             Industrial NE, LLC.

      The opinion of the court was delivered by

FISHER, P.J.A.D.

      Plaintiff Woodmont Properties, LLC contracted to purchase a large tract

of undeveloped land from non-party Hovbros Burlington LLC. Defendant TD

Bank, N.A., which held mortgages on the property, foreclosed and was the

highest bidder at a sheriff's sale. Although it was a long, strange trip in the trial

court, we agree with the trial judge that plaintiff's claim to a continuing interest

in the property cannot be sustained because of the foreclosure sale, which cut

off any further right plaintiff claims to have to purchase the property . In so

holding, we reject the reported trial court decision in PNC Bank v. Axelsson,

373 N.J. Super. 186 (Ch. Div. 2004), which held to the contrary, because it is

inconsistent with N.J.S.A. 2A:50-30 and out of step with the contrary holding

of the State's then highest court in Marcy v. Larkin, 99 N.J. Eq. 429, 430 (E. &

A. 1926). But, while we conclude that this holding is fatal to plaintiff's claim to

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a continuing property interest and its claims against the other defendants, we

agree with plaintiff that its claim against TD Bank of tortiously interfering with

its contractual rights is viable notwithstanding. We, therefore, affirm in part,

reverse in part, and remand for further proceedings.

      To explain in greater detail, on August 25, 2011, plaintiff entered into a

contract to purchase approximately thirty acres of undeveloped land in

Westampton from Hovbros for $5,800,000. A month earlier, defendant TD Bank

issued to Hovbros a letter of intent to lend it $3,500,000; a week after plaintiff

and Hovbros entered into their contract, TD Bank lent Hovbros $3,500,000, the

repayment of which was secured by a mortgage on the property. Plaintiff alleged

in its complaint that TD Bank had knowledge of the contract, that the contract

itself or other oral discussions precluded Hovbros from encumbering the

property in an amount greater than eighty percent of the purchase price, and that

despite this knowledge, TD Bank later encumbered the property to an extent in

excess of the purchase price.

      The transaction between plaintiff and Hovbros did not close by the time

Hovbros defaulted on its obligations to TD Bank. On March 6, 2014, TD Bank

filed a complaint seeking foreclosure on the property and two weeks later

recorded a notice of lis pendens. Plaintiff did not then – or ever – record its

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contract with Hovbros; in fact, that action would have constituted a default under

the contract.2 TD Bank did not name plaintiff as a party to the foreclosure action

despite, as plaintiff alleges, being aware of plaintiff's interest in the property.

On the other hand, plaintiff also made no attempt to intervene despite its

knowledge of the foreclosure action.3 Final judgment of foreclosure, which also

fixed Hovbros's indebtedness at slightly in excess of $5,900,000, was entered on

September 25, 2015.

      Seventeen months after entry of the foreclosure judgment, the property

was struck off at a sheriff's sale. TD Bank was the highest bidder; it assigned its

interest to defendant COBA, Inc., which later received a sheriff's deed. COBA

then contracted to sell the property to defendant MRP Industrial NE, LLC.

      To momentarily back up in our chronological history of the relevant

events, plaintiff also alleged in its complaint that through its efforts

Westampton's township committee designated the property as an area in need of

redevelopment. In September 2014 – months after TD Bank commenced its

2
 Paragraph 26 of the contract stated that "Buyer shall not record this Agreement
or any memorandum thereof. Any such recording shall be deemed a default by
Buyer under this Agreement."
3
  There is no dispute that plaintiff became aware of the foreclosure action no
later than February 28, 2015, approximately six months prior to entry of a
judgment of foreclosure.
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foreclosure action – Westampton enacted an ordinance that declared the land a

redevelopment area and, in November 2014, plaintiff and Westampton entered

into a redevelopment agreement. In October 2018 – almost four years later –

Westampton terminated the redevelopment agreement because plaintiff failed to

obtain title to the property, a contingency in the agreement.

      In November 2018, plaintiff filed this action against Westampton and its

township committee, TD Bank, COBA, and MRP, alleging, among other things,

the circumstances briefly outlined above and asserting that:

               • Westampton and its township committee
                 breached the redevelopment agreement, breached
                 the covenant of good faith and fair dealing,
                 should be estopped from terminating the
                 agreement, adopted a resolution terminating the
                 agreement that is arbitrary, capricious and
                 unreasonable, and should be ordered to cease and
                 desist from attempting to zone the property for
                 industrial use.

               • TD Bank tortiously interfered with the
                 redevelopment agreement and plaintiff's contract
                 with Hovbros.

               • COBA obtained title to the property through TD
                 Bank's tortious interference.

               • All defendants entered into a civil conspiracy to
                 interfere with and deprive plaintiff of its rights
                 under both the contract with Hovbros and the
                 redevelopment agreement.

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      Westampton filed an answer; TD Bank and COBA opted to move to

dismiss rather than file an answer, and MRP later joined in that motion. During

oral argument, the judge posed numerous inquiries – mainly aimed at plaintiff –

questioning the accuracy of some of the complaint's allegations. The judge did

not rule on the motion; instead, the judge permitted TD Bank and COBA to serve

plaintiff with discovery requests to "test [plaintiff's] allegations" and precluded

plaintiff from seeking responses to discovery demands already made.

      After plaintiff responded to the discovery requests, the judge again heard

oral argument. This time, rather than rule on the motion, the judge allowed

defendants to take depositions. The judge also required that plaintiff "evaluate

each and every element of the causes of action that are at issue in the [m]otion

and provide support for [those] factual allegations." Again, the judge forbade

plaintiff from pursuing discovery from defendants.

      After these additional submissions were provided, the judge rendered an

opinion granting TD Bank and COBA's motion to dismiss. The claims against

the other defendants were separately dismissed on later occasions.

      Plaintiff appeals, arguing the judge erred in dismissing the complaint by

"[f]ail[ing] to give [plaintiff] the benefit of all allegations and favorable

inferences," by requiring plaintiff "to prove its case based on an incomplete

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record as discovery was not complete," and by "convert[ing] the motion to

dismiss into a summary judgment motion without advising the parties of its

intent to do so." Plaintiff alternatively argues the sufficiency of the pleaded

causes of action in its complaint; before addressing the merits of plaintiff's

causes of action, we must briefly address plaintiff's procedural concerns, which

we share.

      The procedure adopted by the trial judge is not recognized by our court

rules. To the contrary, it is well-established that a plaintiff is not required to

prove its factual allegations at the motion-to-dismiss stage. See, e.g., Leon v.

Rite Aid Corp., 340 N.J. Super. 462, 472 (App. Div. 2001). TD Bank and COBA,

as well as MRP, moved to dismiss the complaint for failure to state a claim upon

which relief may be granted under Rule 4:6-2(e). The invocation of that

procedure requires a judge to accept the pleader's factual allegations as true and

give the pleader the benefit of all reasonable inferences. Printing Mart-

Morristown v. Sharp Elec. Corp., 116 N.J. 739, 746 (1989); Seidenberg v.

Summit Bank, 348 N.J. Super. 243, 249-50 (App. Div. 2002). The judge,

however, placed the burden on plaintiff to prove the truth of its allegations and

went so far as to allow defendants to test those allegations through discovery

while simultaneously denying plaintiff the opportunity to seek information from

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defendants. This procedure was inconsistent with our jurisprudence and should

not be repeated.

      Other than the additional burdensome litigation the procedure created, the

judge found herself back in essentially the same position as when the motion

was originally before her. Despite the further inquiries in discovery, and despite

whether consideration of what the discovery revealed converted the dismissal

motion into a summary judgment motion, the judge remained obligated to view

the evidence in the light most favorable to plaintiff. See Brill v. Guardian Life

Ins. Co. of Am., 142 N.J. 520, 540 (1995).

      In considering the issues raised in this appeal, we too are bound by the

standards contained in Printing Mart and Brill. See Townsend v. Pierre, 221 N.J.

36, 59 (2015). We therefore start by assuming TD Bank knew of plaintiff's

contract with Hovbros when it encumbered the property in an amount beyond

the contract price, when it sought foreclosure, and when the property was sold

at the sheriff's sale. We also assume Hovbros agreed with plaintiff not to over-

encumber the property, that Hovbros nevertheless over-encumbered the

property, and, by doing so, Hovbros materially breached its contract with

plaintiff. We assume TD Bank knew all this too. Assuming these allegations as

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                                        8
true, this appeal requires that we first determine whether plaintiff still has an

enforceable interest in the property.

      Specifically, we must determine whether TD Bank's assumed knowledge

of plaintiff's contract with Hovbros somehow limited the consequence of the

foreclosure sale. But for Axelsson, our jurisprudence recognizes no legal

impediment to TD Bank's right to have plaintiff's unrecorded rights cut off by

the final act in the foreclosure action. Axelsson, of course, is not binding on us

and not binding on the trial judge. But we find it important – in light of the few

decisions dealing with this subject – to explain why the reported decision in

Axelsson should have no further bearing on similarly-situated parties.

      Axelsson found significance in a foreclosing party's knowledge of an

unrecorded interest on the foreclosed property. 373 N.J. Super. at 196. In

Axelsson, the trial judge considered whether a foreclosing bank's purchase at a

sheriff's sale extinguished an unrecorded easement burdening the foreclosed

property. Based on N.J.S.A. 46:22-1,4 the judge held that "a document that could

4
  N.J.S.A. 46:22-1 stated that "[e]very deed or instrument of the nature or
description set forth in section 46:16-2 of this title shall, until duly recorded or
lodged for record in the office of the county recording office in which the
affected real estate or other property is situate, be void and of no effect against
subsequent judgment creditors without notice, and against all subsequent bona
fide purchasers and mortgagees for valuable consideration, not having notice

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                                         9
have been recorded but was not is invalid as against any subsequent purchaser

or interest holder who takes without knowledge of the unrecorded document,"

and if the plaintiff "knew of defendants' unrecorded easement when it took its

mortgage, N.J.S.A. 46:22-1[5] would validate the unrecorded easement as against

the bank." Id. at 190. In so holding, the judge recognized that N.J.S.A. 2A:50-

306 has been understood as providing a foreclosure-sale purchaser title free of

any unrecorded interest, id. at 191, but he was persuaded – in what he discerned

thereof, whose deed shall have been first duly recorded or whose mortgage shall
have been first duly recorded or registered; but any such deed or instrument shall
be valid and operative although not record, except as against such subsequent
judgment creditors, purchasers and mortgagees."
5
  Axelsson relied heavily on N.J.S.A. 46:22-1. That statute has since been
repealed, L. 2011, c. 217 (effective May 1, 2012), although similar concepts are
contained in the statutes that supplanted it. See N.J.S.A. 46:26A-12.
6
  N.J.S.A. 2A:50-30 states that "[i]n any action for the foreclosure of a mortgage
upon real or personal property in this state, all persons claiming an interest in or
an encumbrance or lien upon such property, by or through any conveyance,
mortgage, assignment, lien or any instrument which, by any provision of law,
could be recorded, registered, entered or filed in any public office in this state,
and which shall not be so recorded, registered, entered or filed at the time of the
filing of the complaint in such action shall be bound by the proceedings in the
action so far as such property is concerned, in the same manner as if he had been
made a party to and appeared in such action, and the judgment therein had been
made against him as one of the defendants therein; but such person, upon
causing such conveyance, mortgage, assignment, lien, claim or other instrument
to be recorded, registered, entered or filed as provided by law, may apply to be
made a party to such action."
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                                        10
was the absence of controlling authority – that "a purchasing mortgagee with

knowledge should not emerge from a [sheriff's] sale in a better position with

respect to an unrecorded interest than existed prior to the sale," id. at 193.

      We appreciate there is little to distinguish between the matter at hand and

Axelsson. But we are satisfied the trial judge was mistaken in ruling as he did

in Axelsson. Like that case, we accept as true the allegations that TD Bank had

knowledge of plaintiff's unrecorded contract with Hovbros, that TD Bank

commenced its foreclosure action with that knowledge, that TD Bank was the

highest bidder at the sheriff's sale, and that TD Bank contends it was freed by

those proceedings of any burden the unrecorded contract between plaintiff and

Hovbros may have once posed. Although Axelsson supports plaintiff's position,

we conclude its holding – that purchasing property at a foreclosure sale with

knowledge of an unrecorded interest does not unencumber the property of that

unrecorded interest – is inconsistent with N.J.S.A. 2A:50-30.

      First, the Axelsson judge's assessment of our jurisprudence persuaded him

that the issue was of first impression. We disagree. In Marcy, the Court of Errors

and Appeals considered a case where a party to an unrecorded contract to

purchase property, like plaintiff here, asserted that the predecessor to N.J.S.A.

2A:50-30 did not apply to cut off her interest in the property because the

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                                       11
foreclosing mortgagee, who purchased the property at a sheriff's sale like TD

Bank, had prior knowledge of her interest. Vice-Chancellor Leaming found it

"immaterial whether the mortgagee in the foreclosure suit had actual or

constructive knowledge" of the contract purchaser's interest before foreclosing .

99 N.J. Eq. at 430. According to the vice-chancellor, the contract-purchaser's

interest was cut off because title was conveyed free and clear to another by way

of the foreclosure sale. Id. at 429-30. The Court of Errors and Appeals affirmed

"for the reasons stated" by the vice-chancellor. Id. at 431.

      In considering a case more similar to Axelsson, the Court of Errors and

Appeals again found a mortgagee's knowledge immaterial in considering

whether an unrecorded easement was cut off by a sheriff's sale. See Walter v.

Introcaso, 135 N.J.L. 461, 466 (E. & A. 1947).

      We conclude – as has this State's leading treatise on the subject – that

Axelsson is out of step with Marcy and Walter, both of which remain binding

on us, and that Axelsson is out of step with the express terms and the policies

underlying N.J.S.A. 2A:50-30. See 30A N.J. Practice, Law of Mortgages with

Forms § 31.35, at 364-66 (Myron C. Weinstein) (Supp. 2021). In calculating the

reach of the foreclosure sale, Axelsson made the mistake of placing the burden

on the foreclosing mortgagee to join known unrecorded interests and not on the

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                                       12
unrecorded-interest holder to intervene. 7 We agree with Mr. Weinstein that in

enacting N.J.S.A. 2A:50-30, the Legislature

            made a policy decision to penalize holders of
            unrecorded interests capable of being filed or recorded
            at time of filing of the foreclosure complaint, and which
            are not so filed and recorded, in order to protect sheriff's
            sale purchasers against any liens not disclosed by the
            public records, placing the burden instead on the
            unrecorded interest holder to intervene. There would
            have been no reason for the Legislature to pass N.J.S.A.
            2A:50-30 if it wanted the recording acts [of which
            N.J.S.A. 46:22-1 was part] to be determinative of a
            foreclosure sale purchaser's rights vis a vis an
            unrecorded interest holder. That's why the statute was
            passed: to negate the effect of N.J.S.A. 46:22-1 with
            respect to unrecorded interests under foreclosure sales.

            [Id. at 366.]

7
   We also agree with the treatise's conclusion that Axelsson mistakenly
distinguished between a third-party purchaser and a foreclosing mortgagee
purchaser at a sheriff's sale when the Axelsson judge held that "[a] foreclosing
mortgagee who purchases is in a somewhat different situation than a purchasing
stranger." Id. at 366. There is nothing in the controlling statute, N.J.S.A. 2A:50-
30, that would suggest courts should draw that distinction; moreover, as Mr.
Weinstein correctly observed in his treatise, "the foreclosing mortgagee is
ordinarily the purchaser at a foreclosure sale in the overwhelming number of
instances," so it is extremely unlikely that the Legislature enacted N.J.S.A.
2A:50-30 to provide a benefit to only "a small minority of foreclosure sale
purchasers while ignoring the overwhelming number of successful purchasers
for the stated purpose of perfecting titles at foreclosure sales." Id. at 363.
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                                       13
The transfer of a sheriff's deed to COBA cut off both Hovbros's right of

redemption and plaintiff's unrecorded interest, which derived solely from its

contract with Hovbros.

      For these reasons, plaintiff's claim to a constructive trust on or any other

interest in the property must fail by operation of law. In addition, its claims

against Westampton must fail because the redevelopment agreement was

conditioned on plaintiff obtaining title to the property. But for the exception to

which we will momentarily turn, plaintiff's other claims depend on plaintiff's

possessing or obtaining title to the property and were properly dismissed.

      We lastly consider whether – having found plaintiff has no continuing

interest in the property – plaintiff nevertheless possesses a viable claim against

TD Bank for tortiously interfering with either its contract with Hovbros, its

contract with Westampton, or both. As a general matter, a party cannot be held

liable for tortiously interfering with another's contractual rights when pursuing

its own lawful rights. "That which one has a right to do cannot become a tort

when it is done." Rothermel v. Int'l Paper Co., 163 N.J. Super. 235, 244 (App.

Div. 1978). Absent exceptions not applicable here, this concept has long been

recognized. See Kutcher v. Hous. Auth. of Newark, 20 N.J. 181, 188 (1955);

Aalfo Co. v. Kinney, 105 N.J.L. 345, 349 (E. & A. 1929); Davis v. Flagg, 35

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                                       14
N.J. Eq. 491, 494 (E. & A. 1882); Kopp, Inc. v. United Tech., 223 N.J. Super.

548, 560 (App. Div. 1988). 8 TD Bank was no more obligated to aid the pursuit

of plaintiff's rights than plaintiff was obligated to forebear in the exercise of its

rights for the benefit of TD Bank. Plaintiff and TD Bank had no agreement with

the other; they were free to pursue their own legal rights and interests in the

property regardless of how their actions might impact the other. As unfettered

competitors in the marketplace, plaintiff and TD Bank were free to exercise their

rights, and the law disposes by allowing the party with the greater legal or

equitable interest to prevail. TD Bank lawfully held a mortgage on the property

and lawfully pursued and finalized a foreclosure action. Those circumstances

eliminated any claim plaintiff may have once had to the property.

      That, however, doesn't completely dispose of plaintiff's claim to damages

based on its allegation that TD Bank tortiously interfered with its contracts with

Hovbros and Westampton. As Chief Justice Weintraub explained, when a party

8
  For example, the Court held in Kutcher that a public housing authority owed
its tenants due process and could not, like a private landlord, act arbitrarily in
pursuing its rights as a landlord. Also, contracting parties are limited in
exercising their contractual rights if prohibited by the implied covenant of good
faith and fair dealing. See, e.g., Sons of Thunder v. Borden, Inc., 148 N.J. 396,
419-20 (1997) (recognizing that in some circumstances the implied covenant
will bar a contracting party from exercising its contractual rights). None of these
circumstances is present here. TD Bank is not a public entity and had no
contractual relationship with plaintiff.
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acts to pursue its lawful interests and "if the means are fair, the advantage should

remain where success has put it." Harris v. Perl, 41 N.J. 455, 461 (1964). But "if

there is sharp dealing or overreaching or other conduct below the behavior [of

persons] similarly situated," a claim for damages may be pursued, even though

the contract was voidable for some other reason. Ibid. The Court recognized this

again in Printing Mart-Morristown, 116 N.J. at 750-51, when holding that

interference, even in the absence of an enforceable contract, is actionable; the

essence of the claim is whether the defendant acted intentionally and with malice

in interfering with another's contractual interest.

      Plaintiff has not alleged that TD Bank's mortgage interests were not

legitimate, and we have shown that the foreclosure proceeding was not defective

and resulted in a lawful transfer of title to another. But, while plaintiff's claim

for a constructive trust, title, or some other interest in the property cannot be

sustained, plaintiff alleged in its sixth count, in so many words, that: TD Bank

manipulated its otherwise lawful position with Hovbros and its related entities;

this manipulation constituted sharp dealing; and TD Bank's manipulative

conduct was designed to interfere with plaintiff's contractual rights with both

Hovbros and Westampton. As we have expressed throughout this opinion,

plaintiff was deprived of discovery; we must therefore assume its allegations of

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TD Bank's manipulations are true and could support an actionable claim for

damages. The claim to an interest in the property, however, cannot be pursued

by operation of the lawful proceedings that led to the transfer of that property to

others.

                                      ***

      The order of dismissal is affirmed in all respects except it is reversed as

to plaintiff's claim in the sixth count for damages against TD Bank for tortiously

interfering with plaintiff's contracts with Hovbros and Westampton.

      Affirmed in part, reversed in part, and remanded. We do not retain

jurisdiction.

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