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

NOT FOR PUBLICATION WITHOUT THE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.
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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
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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.
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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
. . . ."
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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
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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.
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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
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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
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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
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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].
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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
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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.
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