AMBOY BANK v. HARBOR VIEW ESTATES LLC (L-2258-18, MONMOUTH COUNTY AND STATEWIDE) ( 2022 )

NOT FOR PUBLICATION WITHOUT THE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-1665-20
AMBOY BANK,
Plaintiff-Respondent,
v.
HARBOR VIEW ESTATES LLC,
SAMUEL JUFFE, ROBERT
ROSENSHINE, CHARLES
NOREIKA, JOSEPH STADNIK
and JACK BUDELMAN,
Defendants-Appellants,
and
HARBOR VIEW ESTATES LLC
Third-Party Plaintiff-
Appellant,
v.
G.S. REALTY CORP., AB REALTY
LLC, CKES, LLC, and AB
FOXMOORE AT NEWFIELD, LLC,
Third-Party Defendants-
Respondents.
______________________________
Argued November 17, 2021 – Decided March 3, 2022
Before Judges Gilson, Gooden Brown, and Gummer.
On appeal from the Superior Court of New Jersey, Law
Division, Monmouth County, Docket No. L-2258-18.
Steven E. Angstreich argued the cause for appellants
(Weir & Partners, LLP, attorneys; Steven E.
Angstreich, on the briefs).
Mark A. Roney argued the cause for respondents (Hill
Wallack LLP, attorneys; Michael Kahme and Mark A.
Roney, of counsel and on the brief).
PER CURIAM
This appeal arises out of an action brought by plaintiff Amboy Bank
(Amboy) to collect monies due under promissory notes signed by the borrower,
defendant Harbor View Estates, LLC (Harbor, LLC), and guaranteed by
defendants Samuel Juffe, Robert Rosenshine, Charles Noreika, Joseph Stadnik,
and Jack Budelman (Guarantors, and, collectively with Harbor, LLC,
defendants). Amboy lent Harbor, LLC over $3 million for the development of
a townhouse project. The project was not completed, and Harbor, LLC defaulted
by failing to repay the monies due under the promissory notes and a related
mortgage.
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Amboy sued Harbor, LLC in a separate foreclosure action and, after
foreclosing on the property, obtained a judgment. Amboy brought this action to
recover the deficiency between what Amboy lent and the fair market value of
the foreclosed property. Ultimately, on February 19, 2021, Amboy obtained a
final judgment in this note-deficiency action against defendants for
$1,176,732.27, plus post-judgment interest.
Defendants appeal from that final judgment, arguing that the trial court
erred in (1) dismissing on summary judgment their claims that Amboy had
breached the implied covenant of good faith and fair dealing, and (2) not
allowing them to take discovery on their claim that Amboy and third -party
defendants violated the New Jersey Racketeer Influenced and Corrupt
Organizations Act (RICO), N.J.S.A. 2C:41-1 to -6.2. Defendants ask that we
reverse the orders granting summary judgment on the implied-covenant claim
and precluding discovery on the RICO claim and remand the matter for further
proceedings on their claims. We reject defendants' arguments and affirm.
I.
The Guarantors established Harbor, LLC to develop a townhouse project
in Little Egg Harbor Township. The project was to be known as Harbor View
Estates. The plan was to construct and sell forty-three townhouses in six
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buildings. Each townhouse was to be three stories high, consisting of 1,965
square feet, with three bedrooms and a two-car garage.
In March 2014, Amboy agreed to loan Harbor, LLC $4,190,000 for the
cost to develop the project. Amboy and Harbor, LLC signed a loan agreement,
two promissory notes, and related loan documents. To secure the loan, Harbor,
LLC also gave Amboy a mortgage on the property. In addition, the Guarantors
guaranteed the repayment of the loan.
The loan agreement provided that a portion of the loan was to refinance
and cover costs Harbor, LLC had spent for the purchase of the property and for
certain site development. The additional amount of the loan was structured as a
revolving line-of-credit for further development and construction of the
townhouses. Under the loan agreement, Harbor, LLC could draw down on the
line-of-credit based on the construction and sale of townhouse units.
Accordingly, the agreement required construction to be performed in stages with
no more than two buildings and sixteen units being built at any time. Amboy
agreed to make loan advances for units that were contracted for sale with
deposits equal to ten percent of the sale price for a single unit and for a second
building if fifty percent of the townhouse units in one building were sold or
under contract to be sold. Construction advances for the remaining four
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buildings would continue using this system, with no advances permitted until
fifty percent of the units in the prior building were contracted to sell.
The loan agreement contained several anti-waiver provisions, which
required any amendments or modifications to the terms of the loan documents
to be in writing and signed by authorized representatives of Amboy and Harbor,
LLC. In that regard, the loan agreement expressly stated that (1) any delay by
Amboy in exercising its rights would not operate as a waiver; and (2) any failure
by Amboy to insist on strict performance by Harbor, LLC would not waive
Amboy's rights.
In November 2015, Amboy and Harbor, LLC signed a written amendment
to increase the loan to $4,980,000. Accordingly, both promissory notes were
increased by written amendments. The amendments to the notes also included
a provision requiring further modifications to be in writing:
The Lender shall not be deemed to waive any of its
rights or remedies hereunder unless such waiver is in
writing and signed by the Lender and then only to the
extent specifically set forth therein. A waiver in one
event shall not be continuing or a bar to or waiver of a
subsequent event. In the event any agreement
contained in this Note should be breached by the
Undersigned and thereafter waived by the Lender, such
waiver shall be limited to the actual breach so waived
and shall not be deemed to waive any other breach
hereunder.
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The two notes also stated that Amboy had the "sole" discretion to extend the
maturity dates of the notes if requested by Harbor, LLC.
Construction on the seven units in building one began in March 2015.
Construction on the four units in building two began in June 2016.
In October 2016, Harbor, LLC requested extensions on the maturity dates
of the two notes, acknowledging that it was "not prepared to pay for the loan in
full at th[at] time." Within one week of that request, Amboy agreed to those
extensions. In March 2017, the parties signed amendments to the notes
extending their maturity dates to February 2018 for one note and February 2019
for the other note. The documents also stated that "all other terms" not amended
"shall remain in full force and effect and the Note shall in no way be construed
to have been modified, changed or altered or the lien thereof affected in any way
whatsoever, except as set forth herein." The Guarantors separately agreed to
reaffirm, amend, and restated their general and continuing guarantees.
Sales of the townhouse units were not as anticipated. In October 2017,
Harbor, LLC informed Amboy that it could not sell sufficient units to meet the
sold-unit prerequisite for receiving additional loan advances. Consequently,
Harbor, LLC requested a modification of the loan agreement so that it could use
leased townhouse units to meet the requirement for future loan advances. Over
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the next seven months, representatives of Harbor, LLC and Amboy
communicated about modifications to the loan agreement and notes to allow the
project to continue to be developed.
The managing principal of Harbor, LLC, Samuel Juffe, had numerous
communications with Amboy's lending officer, Despina Small. In those
communications, Juffe sought a modification of the requirement that fifty
percent of the units in a building be sold before Amboy would advance funding
for construction of another building. Juffe also requested a modification
permitting Harbor, LLC to use leased units to satisfy the sold-units requirement.
While Juffe certified that he believed Small had orally agreed to those
modifications, it is undisputed that no written modification was agreed to and
signed by an authorized representative of Amboy.
Juffe and representatives of Amboy also discussed Harbor, LLC obtaining
a loan from another lender to provide some funding for the project. In March
2018, Amboy sent Harbor, LLC a proposal with terms and conditions for a third-
party lender to get involved in the project. Harbor, LLC could not satisfy the
conditions of that proposal.
During these discussions, Amboy agreed to extend the maturity date of
one of the notes from February 2018 to May 2018. Nevertheless, in March 2018,
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Harbor, LLC failed to make the monthly payment due on the other note.
Thereafter, Harbor, LLC also failed to make the full payment on the note due in
May 2018. Consequently, Amboy sent Harbor, LLC notices declaring both
notes to be in default and demanding full payment. When Harbor, LLC failed
to repay the loan, Amboy filed two actions: a foreclosure action based on the
mortgage and a note-deficiency action based on the notes and guarantees.
In the foreclosure action, Amboy obtained a judgment of foreclosure for
just under $4 million plus interest and costs. It then bought the property, and
Harbor, LLC sought a fair market value (FMV) credit. Following a bench trial,
the court in the foreclosure action established the FMV for the property to be
$2.9 million. Accordingly, in February 2020, the final judgment in the
foreclosure action was reduced to $1,128,835.93. 1
Meanwhile, in this note-deficiency action, Harbor, LLC disputed Amboy's
claims and filed affirmative defenses and counterclaims. Among those
affirmative defenses and counterclaims, Harbor, LLC asserted that Amboy had
breached the implied covenant of good faith and fair dealing (the Implied
1
Harbor, LLC filed a separate appeal from the FMV determination in the
foreclosure action. We address that appeal in a separate unpublished opinion.
See Amboy Bank v. Harbor View Estates, LLC, Docket No. A-3523-19.
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Covenant). Thereafter, Harbor, LLC also asserted a claim that Amboy and third -
party defendants had violated RICO.
Following a series of motions, on January 24, 2020, the trial court entered
an order precluding Harbor, LLC from taking discovery related to its RICO
claim. Thereafter, Amboy moved for summary judgment on all remaining
claims. On February 2, 2021, the trial court granted summary judgment to
Amboy and dismissed with prejudice defendants' affirmative defenses and
counterclaims, including the Implied Covenant and RICO claims, and Harbor,
LLC's third-party complaint. The court explained those rulings in a written
opinion.
On February 19, 2021, the trial court entered final judgment in this note-
deficiency action fixing the award against defendants, jointly and severally, in
the amount of $1,176,732.27 plus post-judgment interest. Defendants now
appeal.
II.
On this appeal, defendants contend that the trial court erred in (1)
dismissing on summary judgment their claim that Amboy violated the Implied
Covenant; and (2) precluding them from taking discovery on their claim that
Amboy and third-party defendants had violated RICO. Accordingly, defendants
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appeal from the January 24, 2020 and February 2, 2021 orders. We hold that
the Implied Covenant claim was correctly dismissed, and the trial court did not
abuse its discretion in precluding discovery on the RICO claim. Accordingly,
we affirm the orders and the February 19, 2021 final judgment.
1. The Dismissal of the Implied Covenant Claim.
We review the grant of summary judgment de novo using "the same
standard that govern[ed] the motion judge's determination." Caraballo v. City
of Jersey City Police Dep't, 237 N.J. 255, 264 (2019) (citing RSI Bank v.
Providence Mut. Fire Ins. Co., 234 N.J. 459, 472 (2018)). We will uphold a
grant of summary judgment if "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." Ibid.(quoting R. 4:46-2(c)); see also Brill v. Guardian Life Ins. Co. of Am., 142 N.J.
520, 523 (1995).
An implied covenant of good faith and fair dealing exists in every contract
in New Jersey. Wood v. N.J. Mfrs. Ins. Co., 206 N.J. 562, 577 (2011); Wilson
v. Amerada Hess Corp., 168 N.J. 236, 244 (2001); Sons of Thunder, Inc. v.
Borden, Inc., 148 N.J. 396, 420 (1997). The covenant requires that parties to a
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contract "refrain from doing 'anything which will have the effect of destroying
or injuring the right of the other party to receive' the benefits of the contract."
Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J.
210, 224-25 (2005) (quoting Palisades Props., Inc. v. Brunetti, 44 N.J. 117, 130
(1965)).
"The party claiming a breach of the covenant of good faith and fair dealing
'must provide evidence sufficient to support a conclusion that the party alleged
to have acted in bad faith has engaged in some conduct that denied the benefit
of the bargain originally intended by the parties.'" Brunswick Hills, 182 N.J. at
225 (quoting 23 Williston on Contracts § 63:22, at 513-14 (Lord ed. 2002)); see
also Wilson, 168 N.J. at 251. "Proof of 'bad motive or intention' is vital to an
action for breach of the covenant." Ibid. Consequently, the Implied Covenant
"cannot override an express term in a contract." Wilson, 168 N.J. at 244.
Defendants argue that Amboy breached the Implied Covenant by failing
to honor its alleged oral modification to substitute leased units for sold units.
Defendants contend that Harbor, LLC relied on that oral modification to
continue construction, which involved the partners of the LLC contributing more
of their own money to the project. In addition, defendants assert that Amboy
agreed to assist Harbor, LLC with new financing but then withdrew that support.
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Defendants claim that Amboy acted in bad faith and used the default on the loan
as a pretext for exercising its contractual rights to terminate the loan and
foreclose on the property.
Viewing the material facts in the light most favorable to defendants,
defendants cannot prove a breach of the Implied Covenant. All of defendants'
allegations involve oral modifications to the loan agreement and notes. The
notes and loan agreement, however, expressly stated that any modifications had
to be in writing and signed by an authorized representative of Amboy. It is
undisputed that no written modification allowed the substitution of leased units
for sold units. It is also undisputed that no written modification allowed a third-
party lender to participate in the project.
Defendants cannot sidestep the express requirements of the loan
agreement and notes by contending that Amboy's actions were in bad faith.
Amboy's actions were consistent with its contractual rights. In other words, the
contract expressly conditioned further loan advances on the sale of townhouse
units. Consequently, when Amboy refused to allow leased units to be
substituted for sold units, it was not acting in bad faith; rather, it was acting in
accordance with the express rights of the parties' contract. Similarly, when
Amboy refused to diminish its security interest in the property so that a third -
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party lender could become involved, it was not acting in bad faith. Again, it was
acting in accordance with its rights under the loan agreement and notes.
The Implied Covenant "may not be invoked by a commercial debtor to
preclude a creditor from exercising its bargained-for rights under a loan
agreement." Glenfed Fin. Corp., Com. Fin. Div. v. Penick Corp., 276 N.J. Super.
163, 175 (App. Div. 1994). Amboy's refusal to modify the loan agreement and
notes was consistent with its rights under the written agreements. No matter
how those actions are characterized, they do not as a matter of law constitu te
bad faith in violation of the Implied Covenant. Accordingly, we affirm the order
dismissing the claims of violation of the Implied Covenant both as an affirmative
defense and a counterclaim.
2. The RICO Claim.
Harbor, LLC contends that the trial court erred by not allowing it to take
discovery on its counterclaim and third-party complaint alleging that Amboy
and third-party defendants violated RICO. This issue comes before us after the
trial court had granted summary judgment dismissing the RICO claim.
Accordingly, we consider whether further discovery could have supplied the
elements of a RICO claim. Because we conclude that further discovery would
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not have established a RICO claim, we affirm both the order precluding the
discovery and the grant of summary judgment dismissing the RICO claim.
Rule 4:46-1 allows a party to file a motion for summary judgment before
the close of discovery. Claims of incomplete discovery alone are not sufficient
to deny summary judgment. See Wellington v. Est. of Wellington, 359 N.J.
Super. 484, 496 (App. Div. 2003). The party opposing summary judgment must
"demonstrate with some degree of particularity the likelihood that further
discovery will supply the missing elements of the cause of action," Badiali v.
New Jersey Manufacturers Insurance Group, 220 N.J. 544, 555 (2015), and
identify the specific discovery needed. Trinity Church v. Lawson-Bell, 394 N.J.
Super. 159, 166 (App. Div. 2007). An appellate court will generally defer to a
trial court's decision regarding discovery unless that decision was an abuse of
discretion or based on a mistaken understanding of the law. Brugaletta v.
Garcia, 234 N.J. 225, 240 (2018).
To establish a RICO claim, the claimant must demonstrate five elements:
"(1) the existence of an enterprise; (2) that the enterprise engaged in or its
activities affected trade or commerce; (3) that defendant was employed by, or
associated with the enterprise; (4) that he or she participated in the conduct of
the affairs of the enterprise; and (5) that he or she participated through a pattern
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of racketeering activity." State v. Ball, 141 N.J. 142, 181 (1995); N.J.S.A.
2C:41-2(c). Racketeering activity is defined as a predicate act of enumerated
crimes recognized under New Jersey law "or equivalent crimes under the laws
of any other jurisdiction," or conduct constituting racketeering activity under the
federal RICO Act. N.J.S.A. 2C:41-1(a). A "pattern of racketeering activity"
involves at least two predicate offenses committed within ten years of one
another and "[a] showing that the incidents . . . embrace criminal conduct that
has either the same or similar purposes, results, participants . . . or are otherwise
interrelated by distinguishing characteristics and are not isolated incidents."
N.J.S.A. 2C:41-1(d)(2).
To bring a private cause of action under RICO, a claimant must prove
damages to its business or property "by reason of a violation of" RICO and the
predicate act must be the proximate cause of the claimant's injury. N.J.S.A.
2C:41-4(c); Franklin Med. Assocs. v. Newark Public Schs., 362 N.J. Super. 494,
514 (App. Div. 2003) (explaining "a direct relationship between plaintiff's injury
and defendant's conduct" is required to establish standing to pursue a RICO
claim (quoting Interchange State Bank v. Veglia, 286 N.J. Super. 164, 178-81
(App. Div. 1995))).
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Harbor, LLC alleged that Amboy and the third-party defendants operated
a racketeering enterprise under which Amboy would default loans for
construction projects and then have the third-party defendants purchase those
projects at a substantially reduced cost. Harbor, LLC acknowledged that it did
not have any discovery concerning alleged predicate acts involving other loans
and, therefore, it sought discovery concerning other loans. The trial court
correctly reasoned that before Harbor, LLC could seek such discovery, it had to
show how it was damaged by a predicate act. In other words, Harbor, LLC had
to show that Amboy improperly defaulted the loan to Harbor, LLC.
The material undisputed facts establish that Harbor, LLC defaulted on the
loan when it failed to make the payments called for under the notes. The
material undisputed facts also establish that Amboy acted within its contractual
rights in not extending further loan advances. Indeed, the judgment in the
foreclosure action precludes Harbor, LLC from contending that Amboy
criminally exercised its rights under the loan agreement, notes, and mortgage.
In short, Harbor, LLC could not prove that its business or property was damaged
by a predicate act because Amboy's actions were lawful under the loan
agreement, notes, and mortgage. Without the showing of damage to its own
business or property, Harbor, LLC was not entitled to further discovery
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concerning other loans. Accordingly, we discern no abuse of discretion in the
trial court's order precluding further RICO discovery and we affirm that order.
Affirmed.
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