SHREE JI, INC. VS. WATCHUNG LIQUORS (L-3820-17, MIDDLESEX COUNTY AND STATEWIDE)

• Court: New Jersey Superior Court Appellate Division
• Decided: June 8, 2021
• Docket: A-3402-19
• Status: Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ."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-3402-19

SHREE JI, INC.,

Plaintiff-Respondent,

v.

WATCHUNG LIQUORS, INC.,1 and ANIL KUMAR,

Defendants-Appellants.

Submitted May 12, 2021 – Decided June 8, 2021

Before Judges Fuentes and Rose.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-3820-17.

Law Offices of S.K. Gupta, PC, attorneys for appellants (S.K. Gupta, on the brief).

Wiley Lavender, PC, attorneys for respondent (Pankaj Maknoor, on the brief).

PER CURIAM

1 Improperly pled as Watgung Liquors, Inc. Defendants Anil Kumar and Watchung Liquors, Inc. appeal from portions

of a February 14, 2020 Law Division order that denied their motion to transfer

venue to Union County, and denied Watchung Liquors' motion to vacate default

judgment in favor of plaintiff Shree Ji, Inc. We affirm.

We summarize the relevant facts and protracted procedural history from

the record before the motion judge. Plaintiff is the owner of commercial

property located in Plainfield. Kumar is the president and sole owner of

Watchung Liquors, a New Jersey corporation. In 1998, plaintiff leased the

property to Plainfield Liquors, Inc., the predecessor of Watchung Liquors.

Pursuant to the terms of the lease agreement, Watchung Liquors was required to

pay real estate taxes and late fees, in addition to monthly rent. Under certain

circumstances, including assignment to another tenant, plaintiff was entitled to

increase the monthly rent by $200.

In 2001, the lease was assigned to Watchung Liquors. Thereafter,

Watchung Liquors repeatedly failed to make required payments, including taxes

and additional rent. Despite plaintiff's demands, the rent and additional fees

remained in arrears. In 2011, the parties executed a promissory note, obligating

Watchung Liquors to pay the $23,000 arrearages through monthly payments of

$1000, plus $3500 per month for rent and taxes. Kumar personally guaranteed

A-3402-19 2 the note. Watchung Liquors failed to comply with the terms of the note and the

present action ensued.

On June 23, 2017, plaintiff filed a complaint for breach of contract and

related causes of action. On July 6, 2017, Kumar accepted service of the

complaint on behalf of himself and Watchung Liquors. Defendants failed to

answer or otherwise respond to the complaint within thirty-five days of service.

R. 4:6-1(a). On September 13, 2017, plaintiff filed a request to enter default

against both defendants.

On November 15, 2017, Kumar filed a pro se voluntary petition for

reorganization under Chapter 13 of the United States bankruptcy code. Notably,

Kumar did not name plaintiff as a creditor, and Watchung Liquors did not file

bankruptcy proceedings.

Unaware of Kumar's bankruptcy petition, plaintiff moved to enter default

judgment against both defendants on February 8, 2018. Defendants did not

oppose the motion and the court decided the motion on the papers. In support

of its motion, plaintiff filed the certification of its representative and several

documents, including the lease agreement and bank statements. On March 2,

2018, the trial court entered default judgment against both defendants for

$57,315.

A-3402-19 3 On October 16, 2018, Kumar amended his bankruptcy petition and

included plaintiff on his schedule of creditors. Thereafter, plaintiff was notified

that Kumar sought to modify his Chapter 13 bankruptcy plan. Accordingly, on

December 4, 2018, plaintiff filed a proof of claim with the bankruptcy court;

Kumar did not file an objection. See 11 U.S.C. § 502. On December 11, 2018,

Kumar's case was voluntarily converted to a petition for liquidation pursuant to

Chapter 7 of the bankruptcy code. The bankruptcy court issued an order of

discharge on March 15, 2019. 11 U.S.C. § 727.

On March 21, 2019, Kumar moved in the bankruptcy court to void

plaintiff's judgment lien for $57,315, and plaintiff opposed the mot ion.

Thereafter the parties resolved their dispute. Accordingly, on April 26, 2019,

the bankruptcy court filed a consent order, reflecting Kumar withdrew his

motion and plaintiff's judgment lien "remain[ed] unaffected by the [m]otion."

Meanwhile, around March 4, 2019, plaintiff filed a landlord-tenant action

against Watchung Liquors in Union County Superior Court, seeking judgment

of possession for nonpayment of rent. Thereafter, the case was transferred to

A-3402-19 4 the Union County Law Division, and plaintiff filed an amended complaint,

adding claims for damages. 2

On November 26, 2019, Kumar moved pro se on behalf of himself and

Watchung Liquors to vacate the default judgment against defendants and to

consolidate this action with the Union County matter. The trial court thereafter

adjourned the motion to permit Watchung Liquors to retain counsel, see R. 1:21-

1(c), who filed a new motion seeking the same relief as Kumar's pro se

application.

Defendants contended the judgment was entered in violation of Kuma r's

bankruptcy stay and, as such, the judgment was void ab initio under Rule 4:50-

1(d). In the alternative, defendants asserted the circumstances of Kumar's

bankruptcy established excusable neglect, relieving both defendants from

plaintiff's final judgment under Rule 4:50-1(a). In that context, defendants

claimed that because their motion was filed within one year of the conclusion of

Kumar's bankruptcy matter on March 15, 2019, it was timely under Rule 4:50-

2.

2 Watchung Liquors vacated the premises on January 1, 2020. As of the filing of this appeal, the Union County tenancy case was still pending. A-3402-19 5 Following argument on February 14, 2020, the trial court rendered a

decision from the bench, denying the motion to vacate default judgment as it

pertained to Watchung Liquors, only. The court correctly recognized the

automatic stay only relieved Kumar from the judgment here, where Kumar filed

a bankruptcy petition under "Chapter 13 as an individual." Because Kumar "did

not file bankruptcy for Watchung Liquors[,] Chapter 13 is not available to the

corporation as an avenue to discharge [the judgment]." Accordingly, the court

concluded "default judgment was properly entered" against Watchung Liquors.

The court reasoned the approximate twenty months between entry of judgment

and the motion to vacate "far exceed[ed] the reasonable amount of time and the

one-year time limit for claims falling under Rule 4:50-1(a), (b) or (c)[,]" and

Watchung Liquors failed to demonstrate excusable neglect.

Similarly, the trial court determined defendants' motion to transfer the

matter to Union County was untimely because plaintiff was served with the

complaint in this matter on July 6, 2017. See R. 4:3-1(b) (requiring a filing of

a motion to transfer within ten days of the last responsive pleading). In doing

so, the court noted "[t]he Union County matter is close[] to a resolution ." The

court issued a memorializing order the same day.

A-3402-19 6 On March 27, 2020, the court denied plaintiff's ensuing motion for

reconsideration of the portion of the February 14, 2020 order that vacated default

judgment against Kumar. 3 This appeal followed.

The decision whether to grant a motion to vacate a default judgment is

"left to the sound discretion of the trial court." Mancini v. EDS ex rel. N.J.

Auto. Full Ins. Underwriting Ass'n, 132 N.J. 330, 334 (1993). We will not

reverse the court's decision under Rule 4:50-1 absent "a clear abuse of

discretion." U.S. Bank Nat'l Ass'n v. Guillaume, 209 N.J. 449, 467 (2012); see

also U.S. Bank Nat'l Ass'n v. Curcio, 444 N.J. Super. 94, 105 (App. Div. 2016).

An appellate court may reverse, however, when the trial court's decision was not

supported by a rational explanation. See Guillaume, 209 N.J. at 467.

Rule 4:50-1 is "designed to reconcile the strong interests in finality of

judgments and judicial efficiency with the equitable notion that courts should

have authority to avoid an unjust result in any given case." Mancini, 132 N.J.

at 334. The rule establishes six alternative grounds for relief from a final

judgment, whether obtained by default or after trial. In the present matter,

3 Inexplicably, defendants' notice of appeal indicates Kumar is appealing from the March 27, 2020 order that denied relief in Kumar's favor. Plaintiff has not cross-appealed from that order. A-3402-19 7 defendants moved for relief under subsection (d) and, alternatively, subsection

(a).

A final judgment can be set aside under subsection (d) if the party seeking

relief can demonstrate the judgment was void. A motion seeking relief under

Rule 4:50-1(d) generally must be filed "within a reasonable time." R. 4:50-2.

Similar to defendants' argument before the trial court, Watchung Liquors

contends on appeal that the judgment is void under Rule 4:50-1(d). Watchung

Liquors asserts the automatic stay in Kumar's bankruptcy action likewise stayed

the Law Division action against the corporate entity. Plaintiff concedes the

automatic stay applied to Kumar and, as such, the judgment against him,

individually, is void. However, plaintiff maintains Watchung Liquors does not

meet any of the criteria that would extend the automatic stay to the corporate

entity. We agree.

The filing of a petition initiates a bankruptcy action and operates as an

order for relief granting the debtor the protections of the bankruptcy code. 11

U.S.C. § 301(a) and (b). The most fundamental protection triggered by a

bankruptcy filing is the immediate imposition of an automatic stay, which

prevents all efforts against the debtor to collect pre-petition obligations. 11

A-3402-19 8 U.S.C. § 362(a)(1); Celotex Corp. v. Edwards, 514 U.S. 300, 314 (1995)

(Stevens, J., dissenting).

The automatic stay becomes effective immediately upon the filing of the

petition and the broad language of the bankruptcy code section is designed to

prevent a creditor's coercion of a debtor. See Borman v. Raymark Indus., Inc.,

946 F.2d 1031, 1032-33 (3d Cir. 1991). A creditor seeking to proceed against

the debtor may apply to the bankruptcy court for relief from the stay. 11 U.S.C.

§ 362(d). Absent such relief, the stay remains in full effect until the bankruptcy

case is concluded. 11 U.S.C. § 362(c).

We have "recognized that the automatic stay provisions of the bankruptcy

code ordinarily apply only to the debtor and its property and do not protect a

corporation owned by or in which the debtor has an interest." In re Mut. Benefit

Life Ins. Co., 258 N.J. Super. 356, 377 (App. Div. 1992). Moreover, "the

automatic stay does not protect a corporation owned by the debtor." Citizens

First Nat'l Bank v. Marcus, 253 N.J. Super. 1, 5 (App. Div.1991). "A

corporation is regarded in law as an entity distinct from its individual officers,

directors, and agents." Printing Mart-Morristown v. Sharp Elecs. Corp., 116

N.J. 739, 761 (1989).

A-3402-19 9 Nonetheless, "courts have extended the automatic stay to nonbankrupt

codefendants in 'unusual circumstances,'" under 11 U.S.C. § 362(a)(1).

McCartney v. Integra Nat'l Bank N., 106 F.3d 506, 510 (3d Cir. 1997) (quoting

A.H. Robins Co. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986)). Courts have

extended the stay in two particular situations, where: (1) "there is such identity

between the debtor and the third-party defendant that the debtor may be said to

be the real party defendant and that a judgment against the third-party defendant

will in effect be a judgment or finding against the debtor"; and (2) the "stay

protection is essential to the debtor's efforts of reorganization." Ibid. Neither

of those situations is applicable in the present matter.

Nor do we find any merit to Watchung Liquors' reprised argument that

default judgment should have been vacated due to exceptional circumstances

under Rule 4:50-1(a). Under that subsection, a party may seek relief from a

judgment by demonstrating "mistake, inadvertence, surprise, or excusable

neglect." A motion to vacate under Rule 4:50-1(a) must be brought "within a

reasonable time" but not later than one year after judgment. R. 4:50-2.

In the present matter, the default judgment was filed on March 2, 2018,

and notice was sent to defendants on March 13, 2018. But defendants did not

move to vacate the judgment until November 26, 2019 – more than one year and

A-3402-19 10 a half after the default was entered. We therefore discern no basis to disturb the

trial court's decision that the motion was untimely.

Moreover, excusable neglect refers to a default that is "attributable to an

honest mistake that is compatible with due diligence or reasonable prudence."

Deutsche Bank Nat'l Tr. Co. v. Russo, 429 N.J. Super. 91, 98 (App. Div. 2012)

(internal quotation marks omitted). The type of mistake entitled to relief under

the rule is one the party could not have protected itself against. DEG, LLC v.

Twp. of Fairfield, 198 N.J. 242, 263 (2009). We have recognized a defendant's

promptness in moving to vacate a default judgment is a factor that supports

granting the motion. Reg'l Constr. Corp. v. Ray, 364 N.J. Super. 534, 541 (App.

Div. 2003) (affirming a finding of excusable neglect "when examined against

the very short time period between the entry of default judgment and the motion

to vacate"); Jameson v. Great Atl. & Pac. Tea Co., 363 N.J. Super. 419, 428

(App. Div. 2003) (noting the "speed and diligence with which [defendant]

moved to attempt to vacate the default judgment").

Although not expressly included in the rule it is well settled that a

defendant claiming excusable neglect must also demonstrate a meritorious

defense. Marder v. Realty Constr. Co., 84 N.J. Super. 313, 318 (App. Div.

1964). We have recognized "[i]n some circumstances" judges can use their

A-3402-19 11 discretion to vacate the judgment where the defendant proffers a meritorious

defense even if the defendant fails to demonstrate excusable neglect. See Siwiec

v. Fin. Res., Inc., 375 N.J. Super. 212, 219-20 (App. Div. 2005).

Here, Watchung Liquors' excusable neglect argument is inaptly

intertwined with the relief afforded Kumar under the bankruptcy stay.

Watchung Liquors also feigns ignorance as to when the judgment – and the

underlying complaint – were filed, "suggest[ing] that [Kumar] was not aware of

the litigation, as it would have been in his own interest to list . . . plaintiff's

claims in his bankruptcy [petition], and to seek their discharge." Watchung

Liquors' argument ignores the fact that Kumar accepted service of the complaint

on the corporation's behalf about four months before Kumar filed his initial

bankruptcy petition.

Defendants' remaining arguments lack sufficient merit to warrant

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

Affirmed.

A-3402-19 12