NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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
A-4453-19 2 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
A-4453-19 3 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. A-4453-19 4 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.
A-4453-19 5 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
A-4453-19 6 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
A-4453-19 7 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
A-4453-19 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
A-4453-19 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." A-4453-19 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
A-4453-19 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
A-4453-19 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. A-4453-19 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
A-4453-19 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. A-4453-19 15 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
A-4453-19 16 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.
A-4453-19 17