W. JAMES MAC NAUGHTON VS. SHAI HARMELECH (L-0442-12, SUSSEX COUNTY AND STATEWIDE)

• Court: New Jersey Superior Court Appellate Division
• Decided: August 9, 2018
• Docket: A-2014-16T1
• Status: Unpublished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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court."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-2014-16T1

W. JAMES MAC NAUGHTON,

Plaintiff-Appellant,

v.

SHAI HARMELECH, USA SATELLITE & CABLE, INC., CABLE AMERICAN, INC., and NORTH AMERICAN CABLE EQUIPMENT COMPANY, INC.,

Defendants-Respondents,

and

RUSSIAN MEDIA GROUP, LLC,

Defendant. ________________________________

Argued April 30, 2018 – Decided August 9, 2018

Before Judges O'Connor and Vernoia.

On appeal from Superior Court of New Jersey, Law Division, Sussex County, Docket No. L- 0442-12.

W. James Mac Naughton, appellant, argued the cause pro se.

Lynette Siragusa argued the cause for respondents Shai Harmelech, USA Satellite & Cable, Inc., and Cable America, Inc. (Siragusa Law Firm, LLC, attorneys; Lynette Siragusa, of counsel and on the brief; Robert D. Bailey, on the brief).

Joseph D. Cronin argued the cause for respondent North American Cable Equipment Company, Inc. (The Cronin Firm, attorneys; Joseph D. Cronin and Benjamin E. Smith, on the brief).

PER CURIAM

Plaintiff W. James Mac Naughton appeals from a December 22,

2016 order granting summary judgment to defendants Shai

Harmelech, USA Satellite & Cable, Inc., and Cable America, Inc.1

We affirm.

I

Plaintiff, an attorney, represented defendants in

litigation in the United States District Court for the Northern

District of Illinois in 2009. Harmelech is the president of

Cable America, Inc., and vice president of USA Satellite &

Cable, Inc. Defendants fell behind on the payment of

plaintiff's fees and, as a result, in August 2009, the parties

executed a promissory note and security agreement. The security

agreement states in pertinent part:

1 On October 12, 2016, the court dismissed the complaint against defendant North American Cable Equipment, Inc., with prejudice; plaintiff does not appeal from that order. In 2014, plaintiff settled and dismissed his complaint against defendant Russian Media Group, LLC. The term "defendants" in this opinion refers only to the remaining defendants, unless stated otherwise. 2 A-2014-16T1 As security for performance of the obligation, [defendants] give[] [plaintiff] a security interest in all of the [defendants'] right, title, and interest in any and all real or personal property wherever located (the "Property). [Defendants] authorize[] [plaintiff] to sign [defendants'] name to any UCC-1 or other documents reasonably necessary to perfect the security interest in the Property. . . .

[Defendants] will not sell, lease or otherwise transfer the Property nor allow anyone else to obtain a security interest or line upon it during the term of this Security Agreement.

Defendants did not pay in accordance with the terms of the

promissory note. Defendants asserted plaintiff's purported

security interest was meaningless as a matter of law and, thus,

plaintiff did not in fact have an interest in their property.

In response, in October 2009, plaintiff filed an action in the

United States District Court for the District of New Jersey to

collect his unpaid fees, which were approximately $66,000. In

the fourth count of that complaint, plaintiff sought a judgment

declaring his security interest in defendants' property valid.

Defendants moved to dismiss the complaint on the ground it

failed to state a claim upon which relief can be granted. See

Fed. R. Civ. P. 12(b)(6). On September 22, 2010, District Judge

Peter G. Sheridan held the parties' August 12, 2009 agreement

did not create a security interest in either defendants' real or

3 A-2014-16T1 personal property. Judge Sheridan explained that the

description of the collateral in the agreement was

"supergeneric" and, for that and other reasons, dismissed the

fourth count of the complaint.

In his second amended complaint2, plaintiff included a count

that sought reformation of the language in the security

agreement. In that count, plaintiff acknowledged Judge Sheridan

had ruled he did not have a security interest in defendants'

real or personal property and that the "effect of these rulings

is that plaintiff does not have the enforceable 'secured

promissory note' the parties agreed to on August 11, 2009."

However, plaintiff alleged the defective description of the

property in the original agreement was a mutual mistake, and

sought reformation of the security agreement "nunc pro tunc to

express the parties' intention that defendants have pledged all

of their personal and real property as security for payment of

their obligations to [me] and that [I] may enforce that security

interest by all available legal means. . . ."

While the action was still pending and the question of

whether he was entitled to reformation of the security agreement

remained unresolved, on June 20, 2011, plaintiff created and

2 For reasons unnecessary to detail, after filing a first amended complaint, defendants consented to plaintiff filing a second amended complaint. 4 A-2014-16T1 executed his and defendants' signatures to an amended security

agreement. The new agreement states plaintiff has an interest

in various properties, which are described in more detail than

in the original agreement. Plaintiff maintained the amended

security agreement cured the "supergeneric" defect found by

Judge Sheridan.

Significantly, according to the amended security agreement,

plaintiff acquired an interest in any judgments USA Satellite &

Cable, Inc. (USA) obtained against North American Cable

Equipment, Inc., (North American). Plaintiff inserted such

language into the amended security agreement because he had

become aware USA had or was about to recover a judgment from

North American. Plaintiff wanted to recover this asset, a form

of personal property, from USA in order to pay down defendants'

debt.

Plaintiff believed he had the authority to create and

execute defendants' signatures to the amended security agreement

because the original security agreement included the following

language: "[Defendants] authorize[] [plaintiff] to sign

[defendants'] name to any UCC-1 or other documents reasonably

necessary to perfect the security interest in the Property

. . . ."

5 A-2014-16T1 The amended security agreement includes similar language,

and also states the "description" of the property in the amended

security agreement perfects plaintiff's interest in defendants'

property. The amended security agreement states:

[Defendants] agree[] and understand[] that the . . . amended description is reasonably necessary to perfect [plaintiff's] security interest in the Property and [defendants] ha[ve] therefore authorized [plaintiff] to sign [defendants'] name to this [amended agreement]. . . .

Except as expressly modified herein, the Promissory Note and Security Agreement dated August 12, 2009 continues in full force and effect.

Months later, plaintiff filed a motion for leave to file a

third amended complaint to add a count permitting him to enforce

the amended security agreement, so that he could "take

possession of all of [defendants'] property [as] described in

the . . . amended security agreement." On March 30, 2012,

District Judge Esther Salas issued an opinion denying

plaintiff's motion.

Judge Salas observed plaintiff's claim was based on his

assertion he had the right to unilaterally amend the original

security agreement, but that plaintiff "failed to direct this

court to any case law in support of his contention that he is

6 A-2014-16T1 entitled to unilaterally amend the central agreement[,] . . .

much less after that agreement has been deemed invalid."

The judge further commented that Judge Sheridan had

"already found the Security Agreement to be invalid and any

efforts to change the terms of that agreement to circumvent this

court's ruling flies in [the] face of notice, fair play, and

finality." However, given the nature of the motion, Judge Salas

ultimately declined "to take a position on the validity of this

legal theory." She denied the motion on procedural grounds,

finding plaintiff "acted with undue delay, bad faith, and [that]

such an amendment would place undue burden on defendants."

Plaintiff did not seek leave to file any additional complaints

in the federal action, making the second amended complaint the

final, operative complaint in that action.

When Judge Salas denied his motion for leave to file a

third amended complaint, plaintiff filed a complaint in the Law

Division. The only relief he sought in that complaint was an

order declaring he had a "duly perfected security interest in

all of defendants' property as described in the . . . amended

security agreement. . . ." However, that Law Division complaint

was amended three times. The third amended complaint, the last

complaint filed in the Law Division, does not seek the relief

plaintiff requested in his original complaint. 7 A-2014-16T1 The third amended complaint alleges that: (1) defendants

breached the amended security agreement by assigning certain

assets to third parties; (2) defendant Harmelech tortiously

interfered with plaintiff's contractual rights by directing USA

to assign the North American judgment to a third party; and (3)

defendants' assignment of the North American judgment to the

third party constituted a conversion of plaintiff's property.

Meanwhile, the federal action proceeded simultaneously with

the action filed in the Law Division. In 2016, plaintiff filed

a motion in the federal action seeking summary judgment on the

count in his second amended complaint that sought reformation of

the language in the original security agreement that Judge

Sheridan had found invalid. Defendants crossed moved to dismiss

such count.

In that motion, plaintiff argued the subject language in

the original agreement was the result of a unilateral mistake,

see St. Pius X House of Retreats, Salvatorian Fathers v. Diocese

of Camden, 88 N.J. 571, 577 (1982) (noting the grounds

justifying reformation of an instrument are either mutual

mistake or unilateral mistake by one party and fraud or

unconscionable conduct by the other).

For reasons we need not detail here, Judge Kevin McNulty

rejected plaintiff's claim the language in the original 8 A-2014-16T1 agreement was the result of a unilateral mistake, and determined

the language could not be reformed. Among other things, the

judge found, "[plaintiff] drafted this security agreement and

pressed it upon defendants; the responsibility for its defects

is his, and he cannot show that the equities tip in his favor."

The judge granted defendants' motion for partial summary

judgment and entered an order dismissing the count seeking

reformation of the original security agreement. Plaintiff did

not appeal from Judge McNulty's order.

Months later, defendants prevailed on a motion for summary

judgment in the Law Division. The court entered an order on

December 22, 2016 dismissing the complaint against defendants

with prejudice. It is this order plaintiff challenges on

appeal.

In their motion for summary judgment in the Law Division,

defendants pointed out that Judge Sheridan had found the

original security agreement invalid, because the description of

the property in such agreement was so defective it failed to

convey to plaintiff an interest in any of defendants' property.

Defendants also noted Judge McNulty subsequently determined the

defective language in the original agreement could not be

reformed. Defendants argued the amended security agreement is

also invalid because, although the description of the property 9 A-2014-16T1 in such agreement is more detailed, Judge McNulty's ruling

precluded plaintiff from reforming the language in the original

security agreement.

Defendants also noted - and plaintiff did not deny - that

he had stated in a letter to defense counsel that Judge

McNulty's decision "is binding on the parties in [the Law

Division] and adjudicates all of the issues arising out of the

same facts."

In his opposition to defendants' summary judgment motion,

plaintiff did not dispute that, as a result of Judge Sheridan's

ruling, the language in the original security agreement failed

to provide him with an interest in defendants' property.

However, he contended the other terms in the original security

agreement were still valid and, because the original agreement

allegedly gave him the authority to change such document, the

amended agreement he created is valid.

Plaintiff also argued Judge McNulty did not rule upon his

ability to create the amended security agreement and thus such

agreement exists and is binding. That is, plaintiff contends

the federal court neither adjudicated nor ruled he did not have

the authority to unilaterally change the original agreement.

The Law Division judge determined Judge McNulty essentially

found the amended agreement unenforceable, and that such 10 A-2014-16T1 decision is binding pursuant to the doctrine of collateral

estoppel, see In re Estate of Dawson, 136 N.J. 1, 20 (1994),

thereby precluding re-litigation of such issue. The Law

Division judge reasoned that, because the amended security

agreement does not give plaintiff a security interest in

defendants' property and the claims plaintiff asserts in the

third amended complaint depend upon the agreement's validity,

plaintiff's claims fail as a matter of law.

II

On appeal, plaintiff asserts the following arguments for

our consideration:

POINT A: JUDGE MCNULTY DID NOT SPECFICALLY HOLD THE AMENDED [SECURITY AGREEMENT] WAS INVALID.

POINT B: JUDGE MCNULTY DID NOT HAVE JURISDICTION TO RULE THE AMENDED [SECURITY AGREEMENT] WAS INVALID.

POINT C: THE DISMISSAL OF THE REFORMATION CLAIM DOES NOT COLLATERALLY ESTOP THE AUTHORITY CLAIM BECAUSE THE TWO CLAIMS ARE NOT IDENTICAL.

POINT D: IT WOULD BE UNFAIR TO COLLATERALLY ESTOP PLAINTIFF'S CLAIMS ARISING OUT OF THE [SECURITY AGREEMENT].

POINT E: PLAINTIFF'S CLAIMS BASED ON THE NON-ASSIGNMENT CLAUSE CANNOT BE BARRED BY INVALIDATING THE [SECURITY AGREEMENT].

11 A-2014-16T1 We review a trial court's decision on summary judgment "de

novo, employing the same standard used by the trial court."

Tarabokia v. Structure Tone, 429 N.J. Super. 103, 106 (App. Div.

2012) (citing Prudential Prop. & Cas. Ins. Co. v. Boylan, 307

N.J. Super. 162, 167 (App. Div. 1998)). However, we give "no

deference to the trial judge's conclusions on issues of law."

DepoLink Court Reporting & Litig. Servs. v. Rochman, 430 N.J.

Super. 325, 333 (App. Div. 2013). We also "view the evidence in

the light most favorable to the non-moving party and analyze

whether the moving party was entitled to judgment as a matter of

law." Mem'l Props., LLC v. Zurich Am. Ins. Co., 210 N.J. 512,

524 (2012) (citing Brill v. Guardian Life Ins. Co. of Am., 142

N.J. 520 (1995)).

After reviewing the record, the parties' arguments, and the

applicable legal principles, we conclude plaintiff's arguments

are without sufficient merit to warrant discussion in a written

opinion. R. 2:11-3(e)(1)(E). However, we make the following

comments.

As found by Judge McNulty, the language in the original

security agreement that purportedly gave plaintiff an interest

in defendants' property was not amenable to being altered or

reformed. Therefore, even if the original security agreement

gave plaintiff the authority to unilaterally change the terms of 12 A-2014-16T1 such agreement, as a matter of law Judge McNulty's decision

precludes him from doing so.

Further, we reject as unsupported the premise the original

security agreement provided plaintiff license to change its

terms. That agreement authorized plaintiff to sign defendants'

name to any UCC-1 or other document reasonably necessary to

perfect the security interest in the property as defined by such

agreement. However, Judge Sheridan found the definition of

property in the original agreement too indefinite to be binding;

therefore, the property in which plaintiff can perfect a

security interest cannot be ascertained under the terms of the

original security agreement.

Last, plaintiff's authority to sign documents is limited to

signing those which are reasonably necessary to perfect his

security interest in the property defined by the original

security agreement, not alter the terms of the original

agreement and to unilaterally define the property in which

plaintiff has a security interest.

Affirmed.

13 A-2014-16T1