NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court."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 NOS. A-3015-16T4 A-1894-17T4 A-0674-18T4
LAMBS LANE REALTY, LLC, LAWRENCE FEROLIE, JR., and ELIA BORELLI FEROLIE,
Plaintiffs-Appellants,
v.
LAKELAND BANK,
Defendant-Respondent.
Plaintiff-Respondent,
LAMBS LANE REALTY, LLC, LAWRENCE FEROLIE, JR., and ELLA BORELLI FEROLIE,
Defendants-Appellants,
and STATE OF NEW JERSEY,
Defendant.
LAMBS LANE REALTY, LLC, LAWRENCE FEROLIE, JR., and ELIA BORELLI FEROLIE,
Defendants-Appellants.
Argued March 6, 2019 – Decided April 4, 2019
Before Judges Koblitz, Currier and Mayer.
On appeal from Superior Court of New Jersey, Chancery Division, Bergen County, Docket Nos. C-000016-17 and F-001856-17; and Law Division, Passaic County, Docket No. L-0249-17.
Arthur L. Porter, Jr. argued the cause for appellants (Fischer Porter & Thomas, PC, attorneys; Arthur L. Porter, Jr., of counsel; Aaron E. Albert, on the briefs).
Michael P. Crowley argued the cause for respondent (Riker Danzig Scherer Hyland & Perretti, LLP, attorneys; Michael R. O'Donnell, of counsel and on the briefs; Michael P. Crowley, on the briefs).
PER CURIAM
A-3015-16T4 2 Appellants 1 Lambs Lane Realty, LLC (Lambs Lane), Lawrence Ferolie,
Jr., and Elia Borelli Ferolie (Ferolies) appeal from the following: a February
21, 2017 order granting a motion filed by respondent Lakeland Bank (Bank)
dismissing appellants' claims in the Chancery Division, Bergen County, Docket
No. C-000016-17 (Chancery action); a September 29, 2017 order granting
summary judgment in favor of the Bank in a foreclosure action filed in the
Chancery Division, Bergen County, Docket No. F-100856-17 (foreclosure
action); and a June 22, 2018 order granting reconsideration and summary
judgment in favor of the Bank in the Law Division, Passaic County, Docket No.
L-0249-17 (action on the note). We affirm all three orders.
We summarize the facts pertinent to the three actions. In May 2007, the
Bank issued a commitment letter to appellants for a $3 million loan. Appellants
intended to use $1.5 million to construct a home on 22 Lambs Lane. On June
26, 2007, prior to executing any loan documents, the Bank provided appellants
1 Because Lambs Lane and the Ferolies were both plaintiffs and defendants in the various actions, we refer to them as appellants although we traditionally denote the parties by their status before the trial court. The corporate entity, Lambs Lane, owned vacant property at 22 Lambs Lane. The Ferolies owned a home located at 20 Lambs Lane.
A-3015-16T4 3 with appraisals for the collateralized properties. 2 The appraisal for 20 Lambs
Lane estimated the value of the land with the existing structure at $1.5 million.
The appraisals for 22 Lambs Lane estimate the value of the land as vacant at
$650,000 and the value with a newly constructed home at $2 million.
The loan closed in November 2007. Due to various construction delays,
appellants requested and received multiple extensions of the loan's original
maturity date.3
On March 1, 2012, the parties agreed to restructure the 2007 loan.
Appellants signed a note promising to repay the loan by March 15, 2013.
Appellants also executed a mortgage in favor of the Bank, "covering premises
at 22 Lambs Lane[.]" The Ferolies executed a guaranty, assuring the financial
obligations under the note and mortgage.
In accordance with the terms of the restructured loan, the failure to pay all
sums due by March 15, 2013 constituted an event of default. The parties
extended the maturity date on the restructured loan eight times, with the last
extension requiring full payment by June 15, 2016. Each signed loan extension
2 The collateralized properties included 20 Lambs Lane, the lot with an existing home occupied by the Ferolies, and 22 Lambs Lane, the lot on which a new home would be built. 3 The original maturity date was June 1, 2009. A-3015-16T4 4 agreement required appellants to release any claims against the Bank. Before
signing each loan extension agreement, Mr. Ferolie testified he read the
document and obtained legal advice from counsel.
Appellants defaulted on June 15, 2016, and the Bank sent a notice of
intention to foreclose on November 17, 2016. Thereafter, the parties attempted
to negotiate a forbearance agreement but they were unable to agree on material
terms to execute a forbearance agreement.
Knowing a foreclosure action was likely to be filed by the Bank,
appellants preemptively filed the Chancery action. In that action, appellants
sued the Bank, asserting breach of contract and breach of the covenant of good
faith and fair dealing. In addition, appellants demanded injunctive relief to bar
the filing of a foreclosure action by the Bank. Appellants also requested the
parties be compelled to participate in mediation to achieve a forbearance
agreement. After appellants instituted the Chancery action, the Bank filed the
foreclosure action and the action on the note.
The Bank also moved to dismiss the Chancery action. The Bank
contended appellants' claims in the Chancery action could and should be raised
in the foreclosure action. The Chancery judge agreed and issued a February 21,
2017 order dismissing the Chancery action without prejudice.
A-3015-16T4 5 The judge found appellants' claims in the Chancery action were germane
to the foreclosure action. The judge concluded that if he were "to refrain from
dismissing [appellants'] complaint, the entire controversy doctrine would likely
bar [appellants] from raising their claims in the foreclosure action." The judge
also rejected appellants' request to consolidate the Chancery action with the
foreclosure action, finding appellants failed "to explain the need for the
continued existence of [the Chancery action] in addition to the foreclosure action
where [appellants] may raise all their claims." The judge held "it is inconsistent
with the policies underlying the entire controversy doctrine to allow [appellants]
to proceed with this duplicative litigation. The subject matter of the dispute
between the parties involves an already-begun foreclosure proceeding, where
[appellants'] claims may be fully and fairly litigated."
After the exchange of discovery in the foreclosure action, the Bank moved
for summary judgment, which appellants opposed. Appellants argued the Bank's
2007 appraisals hid the true value of the properties. According to appellants,
the Bank's appraisals overvalued the properties and induced them to borrow
more than the properties were worth. Appellants also claimed the parties entered
into a binding forbearance agreement in December 2016, precluding foreclosure
by the Bank.
A-3015-16T4 6 On September 29, 2017, the foreclosure judge issued a written opinion,
dismissing appellants' answer and counterclaim and deeming the foreclosure
action uncontested. The judge rejected appellants' claim that the loan extensions
were unconscionable or constituted economic duress. The judge noted Mr.
Ferolie "testified that he read the provision of the agreements before signing and
that he was represented by counsel when he executed each of the eight
extensions."
The judge also rejected appellants' argument that the default was caused
by the Bank's wrongful conduct. Relying on United Jersey Bank v. Kensey, 306
N.J. Super. 540, 558 (App. Div. 1997), the judge concluded the Bank owed no
duty to disclose to appellants how it internally analyzed and underwrote the loan
in determining the amount the Bank was willing to lend. The judge found
appellants had the ability to obtain their own valuation of the properties. He
further noted appellants were represented by counsel when the loan extension
agreements were executed and could have challenged the Bank's appraisals or
the loan agreement instead of signing the extension agreements.
The judge also found the parties failed to reach an agreement as to the
essential terms of a forbearance agreement. Based on the parties' emails and
drafts of the forbearance agreement, the judge determined there was no meeting
A-3015-16T4 7 of the minds on an agreement. The judge explained there were essential terms
required by the Bank as part of a forbearance agreement, including a deed in
lieu of foreclosure and appellants' waiver of all claims, and appellants never
agreed to those terms.
In dismissing appellants' counterclaim against the Bank for breach of
contract of good faith and fair dealing, the judge explained there was
"insufficient evidence to substantiate these claims." He concluded appellants
were "represented by counsel, . . . had the appraisal as early as 2007 but did not
challenge [the Bank's] loan agreement," and "signed eight extensions of the loan
agreement, each of which released the [Bank] from any and all claims relating
to the loan."
Thereafter, the Bank applied for the entry of a final judgment of
foreclosure, which appellants did not oppose. The final judgment of foreclosure
was entered on December 20, 2017.
While the foreclosure action was pending in Bergen County, the parties
litigated the action on the note in Passaic County. In November 2017, the Bank
moved for summary judgment in that matter. In opposing the motion, appellants
argued the Bank was not entitled to foreclose because the parties reached a
forbearance agreement in December 2016. In addition, appellants claimed the
A-3015-16T4 8 Bank concealed its overvaluation of the collateralized properties in the 2007
appraisals. These were the same arguments raised by appellants and dismissed
in the foreclosure action.
On December 14, 2017, the judge in the action on the note heard argument
on the Bank's motion. Five months later, in a May 16, 2018 order and
accompanying written decision, the judge denied the motion. The judge
determined the Bank's lawsuit to collect on the note was barred by res judicata,
holding:
the summary judgment opinion from the foreclosure action dealt with the same causes of action and claims at issue before this court in the present action. These issues include: unconscionable loan extensions, deceitful behavior, contracts of adhesion, the existence of a forbearance agreement, breach of contract, breach of the covenant of good faith and fair dealing and rescission. Thus, all three elements of res judicata have been met. First, a valid final judgment was entered in an action prior to the one before this court. Second, all the parties in the current action were also parties to the foreclosure action in Bergen County. Third, the action pending before the Passaic County Law Division stems from the same transaction or occurrence and has the same claims as the foreclosure action in Bergen County.
The Bank filed a motion for reconsideration, clarifying that it prevailed in
the foreclosure action and explaining all of the issues identified by the judge had
been resolved in the foreclosure action but a final judgment of foreclosure had
A-3015-16T4 9 not been issued when the parties argued the motion in December 2017. 4
Therefore, the Bank argued it was entitled to summary judgment on res judicata
grounds because the same issues involving the same parties were resolved in its
favor in the foreclosure action.
During argument on the reconsideration motion, the judge acknowledged
his error concerning the procedural posture of the case. The judge explained,
"[i]t didn't strike me that this was actually the action on the note . . . and I guess
I should have known[.]" The judge reviewed the rulings made by the Bergen
County judge who handled the foreclosure action and relied on those rulings in
granting the Bank's motion for reconsideration and summary judgment in the
action on the note. He concluded the only issue not decided by the foreclosure
judge was the amount due to the Bank under the note and guaranty. The judge
found appellants did not dispute the amount due on the note and the only
outstanding issue was the amount of attorneys' fees allowable under the
guaranty.
By order dated June 22, 2018, the judge granted the Bank's motion for
summary judgment in the amount of $1,597,649.36. The order allowed the Bank
4 The final judgment in the foreclosure action was issued six days after oral argument on the Bank's summary judgment motion in the action on the note. A-3015-16T4 10 to submit a certification seeking attorneys' fees. In a September 10, 2018
amended order, the judge awarded the Bank the sum of $1,885,190.95, inclusive
of attorneys' fees.
Appellants appealed the final orders from the Chancery action, the
foreclosure action, and the action on the note.
In their appeal regarding the Chancery action, appellants assert the trial
judge abused his discretion in dismissing their claims. Appellants also contend
their claims in that action were adequately pled. Because appellants' claims in
the Chancery action were fully litigated and addressed in the foreclosure action,
we find the arguments on appeal related to the Chancery action are without
sufficient merit to warrant discussion in a written opinion. See R. 2:11-
3(e)(1)(E).
In the appeal related to the foreclosure action, 5 appellants argue summary
judgment should not have been granted because: (1) the Bank included
unconscionable provisions in the loan extension agreements; (2) the default on
the loan was attributable to the Bank's bad faith conduct; and (3) the Bank
breached the forbearance agreement.
5 Appellants are not challenging the Bank's right to file a foreclosure action. A-3015-16T4 11 In the appeal from the final judgment in the action on the note, appellants
argue: (1) there were genuine material factual disputes precluding summary
judgment; (2) the Bank's conduct caused appellants to default; (3) the Bank
concealed its mistake in calculating the loan-to-value assessment for the
properties; (4) the Bank violated its fiduciary duty to appellants as well as the
covenant of good faith and fair dealing; (5) the release language in the loan
extension agreements was unconscionable and rendered the agreements void;
and (6) the parties agreed to the essential terms of a forbearance agreement.
We review a grant of summary judgment de novo, applying the same
standard as the trial court. Templo Fuente De Vida Corp. v. Nat'l Union Fire
Ins. Co. of Pittsburgh, 224 N.J. 189, 199 (2016). Summary judgment may be
granted when "the pleadings, depositions, answers to interrogatories and
admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact challenged and that the moving party is
entitled to a judgment or order as a matter of law." R. 4:46–2(c).
In determining whether there is a genuine issue of material fact, courts
"consider whether the competent evidential materials presented, when viewed
in the light most favorable to the non-moving party, are sufficient to permit a
rational factfinder to resolve the alleged disputed issue in favor of the non-
A-3015-16T4 12 moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
If the evidence presented "show[s] that there is no real material issue, then
summary judgment should be granted." Walker v. Atl. Chrysler Plymouth, Inc.,
216 N.J. Super. 255, 258 (App. Div. 1987).
We first review appellants' argument that the loan extension agreements
are unconscionable and thus void. Appellants based their unconscionability
claim on the following: the Bank's requirement in the loan extension agreements
that appellants waive all claims against the Bank; the Bank took advantage of
appellants' legal naivety; and the loan extension agreements were contracts of
adhesion.
To successfully plead unconscionability as a defense, a defendant must
prove the contract "terms are manifestly unfair or oppressive and are dictated by
a dominant party." Howard v. Diolosa, 241 N.J. Super. 222, 230 (App. Div.
1990). A defendant must demonstrate "some overreaching or imposition
resulting from a bargaining disparity between the parties, or such patent
unfairness in the contract that no reasonable person not acting under compulsion
or out of necessity would accept its terms." Ibid.
"There is of course an element of compulsion anytime a creditor asks a
debtor in default to agree to anything; the creditor holds the upper hand."
A-3015-16T4 13 Glenfed Fin. Corp. v. Penick Corp., 276 N.J. Super. 163, 174 (App. Div. 1994).
However, requiring a debtor to agree to changes in the agreement when the
creditor exercises its right "to declare a loan in default or to forbear from taking
such action" is not "'wrongful conduct' . . . [and] does not constitute economic
duress." Ibid.
Here, appellants admit borrowing the money, executing the loan
documents, defaulting on the loan, and asking the Bank, on eight separate
occasions, for extensions of time to repay the loan. The loan extensions were
granted by the Bank to allow appellants to pay the loan and avoid foreclosure.
This case reflects a traditional relationship between a lender and a borrower.
Based on that relationship, there is nothing unfair or oppressive in the Bank's
request that appellants waive any claims against it in return for the numerous
loan extensions.
Appellants have also failed to demonstrate how the waiver of their claims
against the Bank under these circumstances was patently unfair or
unconscionable. The Bank had the legal right to declare appellants in default
under the loan documents and had no obligation to agree to any loan extensions.
Moreover, Mr. Ferolie testified he read the provisions in the loan extension
A-3015-16T4 14 agreements and sought the advice of legal counsel before signing each extension
agreement.
We next consider appellants' contention that the loan extension
agreements are contracts of adhesion and therefore unenforceable. A contract
of adhesion "is a contract 'presented on a take-it-or-leave-it basis, commonly in
a standardized printed form, without opportunity of the "adhering" party to
negotiate except perhaps on a few particulars.'" Martindale v. Sandivik, Inc.,
173 N.J. 76, 89 (2002) (quoting Rudbart v. N. Jersey Dist. Water Supply
Comm'n, 127 N.J. 344, 353 (1992)). Even if an agreement constitutes a contract
of adhesion, the contract is not automatically void. See Rodriguez v. Raymours
Furniture Co., Inc., 225 N.J. 343, 366-67 (2016). When considering whether to
enforce the provisions in a contract of adhesion,
courts must look not only to the standardized nature of the contract, 'but also to the subject matter of the contract, the parties' relative bargaining positions, the degree of economic compulsion motivating the "adhering" party, and the public interests affected by the contract.'
[Martindale, 173 N.J. at 90 (quoting Rudbart, 127 N.J. at 356).]
In this case, appellants were not coerced into signing the eight loan
extension agreements. The Bank agreed to delay declaring default of the loan
A-3015-16T4 15 and to the loan extension agreements so appellants could sell the newly
constructed home and pay the loan obligation. Both parties benefited from the
loan extension agreements. Appellants bargained for and received additional
time to pay their financial obligations in return for the Bank's agreement to delay
declaring default and filing for foreclosure. Appellants present no evidence that
enforcement of the loan extension agreements implicates a matter of public
policy. In addition, appellants had legal counsel when Mr. Ferolie signed the
loan extension agreements. Under the circumstances, we are satisfied the loan
extension agreements were enforceable.
We next consider appellants' argument that the Bank acted in bad faith.
Appellants claim the Bank caused them to default by purposely overvaluing the
properties when it extended the loan, thus inducing appellants to borrow more
money than the properties were worth. The foreclosure judge rejected this
argument, relying on the United Jersey Bank v. Kensey, 306 N.J. Super. 540
(App. Div. 1997).
In Kensey, the defendant challenged a foreclosure action, arguing the bank
breached its duty by failing to share an appraisal, estimating the value of the
pledged property to be substantially lower than the loan amount. Id. at 544, 549.
We held "[t]he law 'imposes no duty on banks to disclose to the borrower the
A-3015-16T4 16 manner in which the lender internally analyzes and underwrites a loan.'" Id. at
558 (quoting N. Trust Co. v. VIII S. Mich. Assocs., 276 Ill App. 3d. 355, 364
(Ill. App. Ct. 1995)). "[A] financial institution, acting within its conventional
role as a lender of money, owes no duty of care to the borrower when preparing
an appraisal of the borrower's collateral." Kensey, 306 N.J. Super. at 558. This
is especially true because the relationship between a borrower and a lender is
based on each party acting in their own interest and conducting themselves in
an arms-length manner. Id. at 553.
Here, the Bank disclosed the appraisal information to appellants prior to
execution of the loan documents. Unlike the defendants in Kensey, appellants
failed to demonstrate the Bank encouraged them to rely on the appraisals or
concealed any self-interest in processing the loan. The Bank was not required
to send the appraisal information on which it based the amount it was willing to
lend to appellants. Appellants had ample opportunity to obtain their own
appraisals but did not do so. In addition, appellants failed to review the
appraisals until 2014, well after the loan documents and all eight loan extension
agreements were signed. Considering these facts, we discern no basis to disturb
the judge's rejection of appellants' bad faith claim against the Bank.
A-3015-16T4 17 We next address appellants' argument that the Bank entered into a binding
forbearance agreement and breached that agreement by attempting to add
unreasonable terms. Contract law requires "an 'offer and acceptance' by the
parties, and the terms of the agreement must 'be sufficiently definite [so] that
the performance to be rendered by each party can be ascertained with reasonable
certainty.'" GMAC Mortg., LLC v. Willoughby, 230 N.J. 172, 185 (2017)
(quoting Weichert Co. Realtors v. Ryan, 128 N.J. 427, 435 (1992)). For a
contract to be formed, the parties must "agree on essential terms and manifest
an intention to be bound by those terms[.]" Weichert, 128 N.J. at 435.
Here, no agreement on the essential terms of the forbearance agreement
existed. The parties disagreed on several material terms, including the length of
the forbearance period, the interest rate during the forbearance period, admission
by appellants of a default under the loan, and execution of full releases in favor
of the Bank. Appellants were also unwilling to grant a deed in lieu of foreclosure
or provide a confession of judgment as part of the forbearance agreement.
Because the parties were unable to agree to material and essential terms, there
was no meeting of the minds on a forbearance agreement.
Finally, we review appellants' contention that the judge handling the
action on the note erred in reconsidering summary judgment in favor of the
A-3015-16T4 18 Bank. Appellants for the first time claim there were material factual disputes
that precluded summary judgment. However, appellants never raised this
argument to the motion judge. We need not consider arguments not properly
presented to the trial court when an opportunity for such a presentation is
available absent the matter going to the jurisdiction of the trial court or a concern
of great public interest. See Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234
(1973); R. 2:10-2.
Even if appellants had raised such an argument, we reject the contention
that reconsideration was improper. Reconsideration is "designed to seek review
of an order based on the evidence before the court on the initial motion" and "is
only to point out 'the matters or controlling decisions which counsel believes the
court has overlooked or to which it has erred.'" Capital Fin. Co. of Del. Valley
v. Asterbadi, 398 N.J. Super. 299, 310 (App. Div. 2008) (quoting R. 4:49-2).
In this case, the Bank filed a motion for reconsideration based on an
apparent error by the motion judge. The judge applied the doctrine of res
judicata but was unaware at the time of the original decision that the matter
involved a suit on the note and guaranty and not a second foreclosure action by
the Bank. The Bank did not seek reconsideration to introduce new evidence or
cure an inadequacy in the record. Rather, the Bank sought to address an issue
A-3015-16T4 19 because the Bank believed the motion judge erred. Here, reconsideration was
appropriate to correct a misperception by the motion judge in his original
decision.
Res judicata is applicable to actions based on notes and guarantees where
a final judgment has been entered in a foreclosure action involving the same
issues and the same parties. See Cent. Penn Nat'l. Bank v. Stonebridge, Ltd.,
185 N.J. Super. 289, 302-03 (Ch. Div. 1982). The judge in the foreclosure action
dismissed the same defenses and claims raised by appellants in the action on the
note. Therefore, the Bank was entitled to summary judgment in the action on
the note based on the doctrine of res judicata.
Having reviewed the record, we are satisfied the orders entered in favor
of the Bank in the Chancery action, the foreclosure action, and the action on the
note were warranted.
Affirmed.
A-3015-16T4 20