PIO A/K/A PETER TARQUINIO VS. CLAUDIO TARQUINIO (C-012069-11, SOMERSET 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NOT FOR PUBLICATION WITHOUT THE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-1802-18T1
PIO a/k/a PETER TARQUINIO,
Plaintiff-Respondent,
v.
CLAUDIO TARQUINIO, TAMMY
TARQUINIO, EVEX, INC., EVEX
ANALYTICAL INSTRUMENTS,
INC., 2486 ROUTE 206, LLC,
CTTK, LLC, and EVEXGLOBAL,
LLC,
Defendants.
_______________________________
Argued October 10, 2019 – Decided January 22, 2020
Before Judges Koblitz, Whipple and Gooden Brown.
On appeal from the Superior Court of New Jersey,
Chancery Division, Somerset County, Docket No. C-
012069-11.
Douglas J. McGill argued the cause for appellants
Drinker Biddle & Reath LLP, Walter J. Fleischer, Jr.,
and Paul G. Nittoly (Webber McGill LLC, attorneys;
Douglas J. McGill, of counsel and on the briefs).
Douglas A. Stevinson argued the cause for respondent
(Windels Marx Lane & Mittendorf, LLP, attorneys;
Douglas A. Stevinson, of counsel and on the brief).
PER CURIAM
This appeal stems from a priority dispute between judgment creditors,
Drinker Biddle & Reath LLP, Walter J. Fleischer, Jr., and Paul G. Nittoly
(collectively, the DBR creditors) on one side, and Pio a/k/a Peter Tarquinio
(Peter)1 on the other side. The DBR creditors and Peter each obtained judgment
liens in separate lawsuits against Claudio and Tammy Tarquinio, a married
couple. Peter's judgments were obtained in the underlying lawsuit. The funds
at the heart of the appeal are sale proceeds from real property owned jointly by
Claudio and Tammy. Claudio filed for bankruptcy and although Tammy was
not a party to the bankruptcy proceeding, the bankruptcy court permitted
Claudio's Bankruptcy Trustee to sell Tammy's interest in the property under
applicable bankruptcy law. Pursuant to the bankruptcy court's order, following
the closing, Tammy's share of the sale proceeds was held in escrow by a title
insurance company pending resolution of the priority dispute by a court or the
parties.
1
We refer to the Tarquinios by their first names to avoid any confusion caused
by their common surname and intend no disrespect by this informality.
A-1802-18T1
2
Although Peter's judgments were obtained after the DBR creditors', Peter
levied on Tammy's share and filed a turnover motion for the funds before the
DBR creditors. Over the objection of the DBR creditors, the trial court granted
Peter's motion and denied the DBR creditors' cross-motion for a turnover order.
The DBR creditors now appeal, raising the following points for our
consideration:
I. [PETER]'S PURPORTED LEVY ON THE
PROCEEDS WAS LEGALLY DEFECTIVE
BECAUSE THE PROCEEDS IN THE HANDS OF
THE TITLE COMPANY WERE IN CUSTODIA
LEGIS.
A. THE TITLE COMPANY WAS THE
TRUSTEE'S AGENT, AND THEREFORE
HELD THE PROCEEDS AS AN
OFFICER OF THE BANKRUPTCY
COURT.
B. NEW JERSEY LAW PROHIBITS A
CREDITOR WITH A LIEN AGAINST
REAL PROPERTY FROM LEVYING ON
THE PROCEEDS OF SUCH PROPERTY
AFTER THE PROPERTY AND/OR THE
PROCEEDS ARE IN THE POSSESSION
OF A COURT OFFICER.
II. THE COURT BELOW ERRED IN
CONCLUDING THAT A LACK OF CONFUSION OR
EMBARRASSMENT VIS-À-VIS IT AND THE
BANKRUPTCY COURT SUPPORTED A FINDING
THAT THE PROCEEDS WERE IN CUSTODIA
A-1802-18T1
3
LEGIS, OR THAT THE PROCEEDS WERE NOT
OTHERWISE IMMUNE FROM LEVY.
III. THE PROCEEDS RETAINED THE
CHARACTER OF REALTY FOR DISTRIBUTION
PURPOSES, AND [PETER]'S PURPORTED LEVY
WAS NOTHING MORE THAN AN INEFFECTUAL
EFFORT TO PERFECT HIS PRE-EXISTING LIEN
AGAINST THE PROPERTY RATHER THAN AN
EFFORT TO ESTABLISH A NEW LIEN THAT
COULD BE PERFECTED BY POSSESSION.
IV. ASSUMING, [ARGUENDO], THAT [PETER]'S
PURPORTED LEVY COULD HAVE HAD LEGAL
EFFECT, THE LEVY DID NOT ATTACH TO THE
PROCEEDS BECAUSE TAMMY HAD NO
INTEREST IN THE PROCEEDS.
We reject these arguments and affirm.
I.
The following facts and procedural history are largely undisputed. In the
underlying lawsuit, on October 14, 2016, Peter obtained an amended judgment2
for compensatory and punitive damages against his brother, Claudio, and sister-
in-law, Tammy,3 totaling $3,205,259,4 which judgment was docketed on
2
The judgment was amended from an earlier judgment entered on September
27, 2016, which mistakenly omitted one of the parties.
3
The judgment was also entered against EvexGlobal, LLC, and CTTK, LLC,
jointly and severally.
4
We round all monetary amounts to the nearest dollar.
A-1802-18T1
4
November 21, 2016. The lawsuit stemmed from Claudio's and Tammy's
fraudulent misconduct in the operation of several businesses the three owned
and operated together. Subsequently, on December 5, 2016, and March 10,
2017, separate judgments were entered in favor of Peter against Tammy and
Claudio, respectively, in the amount of $356,063 each, for counsel fees incurred
by Peter in the underlying lawsuit. We affirmed the judgments in an
unpublished decision issued on September 19, 2018. Tarquinio v. Tarquinio,
Nos. A-1116-16 and A-3902-16 (App. Div. Sep. 19, 2018).
Previously, on April 1, 2016, the DBR creditors had obtained a judgment
against Claudio and Tammy in the amount of $172,748 in an unrelated lawsuit.
The judgment was docketed on April 14, 2016 and remained unsatisfied. After
Peter's October 14, 2016 judgment was entered and Peter's counsel fee
application was pending, Claudio filed a petition for bankruptcy protection on
October 26, 2016, with the United States Bankruptcy Court.5 In his bankruptcy
filing, among his assets, Claudio listed real property located in Princeton (the
Princeton property), owned by Claudio and Tammy as tenants by the entirety.
Although Tammy did not file for bankruptcy protection, on November 20, 2017,
5
Claudio initially filed under Chapter 11 of the United States Bankruptcy Code,
but his case was subsequently converted to a liquidation proceeding under
Chapter 7 pursuant to 11 U.S.C. §1112(b).
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the bankruptcy court granted partial summary judgment to Claudio's Bankruptcy
Trustee, permitting the Trustee to partition and sell both Claudio and Tammy's
interest in the Princeton property pursuant to 11 U.S.C. § 363(h).
After the Trustee executed a contract for the sale of the Princeton property,
on July 13, 2018, the bankruptcy court entered an amended order (the
bankruptcy order) with input from the parties in interest, including Peter and the
DBR creditors, directing that Claudio's one-half of the net sale proceeds be
turned over to the bankruptcy estate, while Tammy's one-half interest would be
held in escrow by a title insurance company for distribution upon resolution of
the priority dispute between the DBR creditors' and Peter's judgment liens .
Specifically, in pertinent part, the bankruptcy court
ORDERED that payment to clear any judgment
liens against the Princeton [p]roperty, including
judgment liens rooted in judgments respectively held
by the DBR [creditors] and Peter . . . jointly and
severally against [Claudio] and Tammy . . . , shall be
paid exclusively from Tammy['s] . . . interest in the net
proceeds of sale of the Princeton [p]roperty . . . and no
amount shall be paid on account of said judgment liens
from the estate's interest in the proceeds of sale of the
Princeton [p]roperty until the liquidation of [Claudio's]
estate in the normal course or as otherwise directed in
a further order of the [c]ourt; and it is further
ORDERED that in connection with the relief set
forth in the preceding paragraph, the title insurance
company (the [t]itle [c]ompany[]) handling the closing
A-1802-18T1
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of sale of the Princeton [p]roperty shall hold in escrow
any and all proceeds attributable to Tammy['s] . . .
interest in the Princeton [p]roperty (the [e]scrow
[p]roceeds[]) until such time [that] either an agreement
is reached between the DBR [creditors] and Peter . . . ,
or this [c]ourt or any other court of competent
jurisdiction has made a determination with respect to
the priority between the judgment liens of the DBR
[creditors] and Peter . . . , at which time the [t]itle
[c]ompany shall distribute the [e]scrow [p]roceeds to
the DBR [creditors] and Peter . . . in accordance with
the agreed upon or determined priority of their
respective judgment liens, and no amount shall be
distributed or released by the [t]itle [c]ompany to
Tammy . . . until and unless the judgment liens have
been satisfied; and it is further
ORDERED that the [t]itle [c]ompany shall not
release any of the [e]scrow·[p]roceeds to any third
parties unless directed by an order of this [c]ourt or any
other court of competent jurisdiction, except as
provided herein[.]
On September 6, 2018, Claudio's Bankruptcy Trustee consummated the
sale of the Princeton property. The net sale proceeds attributable to Tammy's
one-half interest totaled $263,951, and, pursuant to the bankruptcy order, was
held in escrow by Greater New Jersey Title Agency, the title company selected
by the buyer for the closing. Upon obtaining the name of the title company, in
a September 26, 2018 letter, Peter requested the Middlesex County Sheriff to
reserve a levy upon Tammy's share of the funds held by Greater New Jersey
Title Agency. Accompanying the letter, Peter provided the writ of execution
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previously issued by the trial court on March 28, 2017, ordering the Sheriff to
take possession of all property owned by Tammy in order to satisfy his duly
docketed judgment. On October 11, 2018, the Sherriff effectuated the levy on
Greater New Jersey Title Agency and notified all interested parties accordingly.
On October 19, 2018, Peter filed a motion for turnover of the levied funds
to partially satisfy his judgments. In support, Peter asserted his judgment liens
should be given first priority over other non-levying judgment creditors because
he was the first to serve the title company with a writ of execution and request
that the Sheriff levy upon Tammy's share of the Princeton property's sale
proceeds. On November 1, 2018, the DBR creditors opposed Peter's motion and
cross-moved for a turnover order. In support, the DBR creditors asserted the
sale proceeds should be turned over to them because their judgment was
docketed prior to Peter's. Additionally, the DBR creditors claimed that the sale
proceeds were in custodia legis because the title company was acting as an agent
of Claudio's Bankruptcy Trustee. As such, the DBR creditors asserted the
proceeds "remain[ed] subject to the [b]ankruptcy [c]ourt's jurisdiction[,]"
thereby invalidating Peter's levy. Even if the sale proceeds were not in custodia
legis, the DBR creditors maintained Peter failed to "establish[] that he made any
effort to locate and levy upon any of Tammy's personal property before levying
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on the [sale] proceeds, which [were] deemed to be real property for the purposes
of distribution."
Peter countered that he took considerable steps to locate Tammy's assets.
In support, Peter submitted Tammy's deposition testimony in which she testified
that she had no personal assets that Peter could attach to satisfy the judgmen t.
Further, Peter asserted he was "not seeking to enforce his lien against real
property," and thus, was "not required to exhaust Tammy's personal property
before levying upon the sale[] proceeds." Additionally, Peter asserted the funds
were not in custodia legis because the sale proceeds were never paid into court
or held by a court officer but were instead held in escrow by a title company. In
a supporting certification, Claudio's Bankruptcy Trustee averred that "neither
[he] nor [Claudio's] bankruptcy estate [had] an interest in Tammy['s] . . . interest
in the proceeds of sale of the [Princeton] [p]roperty."
Following oral argument, on November 29, 2018, Judge Margaret
Goodzeit granted Peter's motion and denied the DBR creditors' cross-motion. In
a written statement of reasons accompanying the orders, the judge noted that
"[b]y operation of law, the docketing of [the] DBR[] [creditors'] judgment and
Peter's judgment constituted liens in favor of [the] DBR [creditors] and Peter,
A-1802-18T1
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respectively, on all real property within the State . . . owned by any of the
judgment debtors." The judge explained that:
R[ule] 4:59-1 provides that the process to enforce
a judgment shall be by writ of execution unless the
court otherwise orders. Under New Jersey law, the
prerequisite to entry of a turnover order is the issuance
of a writ of execution for the purpose of a levy.
N.J.S.A. 2A:18-27. The turnover order is a mechanism
that directs a garnishee holding the debtor's funds to
pay those funds over to creditors rather than to the
debtor. See N.J.S.A. 2A:17-63. . . .
Priority among creditors is determined by order
of levy of execution or the date of entry of judgment if
no execution was issued. See Burg v. Edmondson, 111
N.J. Super. 82, 85 (Ch. Div. 1970). Further, "a junior
creditor who first levies upon the property of the debtor
is accorded priority over a senior creditor who has not
levied." Swift & Co. v. First Nat. Bank of Hightstown,
114 N.J. Eq. 417 (Ch. 1933); Vineland Savings & Loan
Assn. v. Felmey, 12 N.J. Super. 384 (Ch. Div. 1950).
The judge acknowledged that the facts in the case were "not in dispute[,]"
and posited that "[t]he issue before the [c]ourt [was] the order of priority of the
[two] judgment creditors, DBR and Peter." The judge concluded that Peter had
priority over the DBR creditors because although Peter's judgment was entered
after the DBR creditors', "[Peter] was first in time to levy upon the proceeds[.]"
In rejecting the DBR creditors' contention that the proceeds were in custodia
legis and therefore immune from Peter's levy, the judge explained that property
A-1802-18T1
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in custodia legis was immune from levy to avoid interference, confusion or
embarrassment occasioned by one tribunal enforcing process against property
under the jurisdiction of another tribunal. However, here, "the language of the
[Bankruptcy] [o]rder does not indicate that the proceeds are held in custodia
legis, despite the existence of several published cases upon which the [o]rder
could have been modeled" in order to dictate a contrary interpretation.
Further,
the plain language of the Bankruptcy . . . [o]rder
indicates that it made no determination as to the order
of priorities between [the] DBR [creditors] and Peter.
Instead, the [Bankruptcy] [o]rder states, with specific
reference to [the] DBR [creditors] and Peter . . . , that
a[n] unnamed title company would hold the proceeds in
escrow until "either an agreement is reached between
the DBR [creditors] and Peter . . . , or [the bankruptcy]
[c]ourt or any other court of competent jurisdiction has
made a determination with respect to the priority
between the judgment liens of the DBR [creditors] and
Peter . . . ."
Given that the Bankruptcy . . . [o]rder specifically
contemplated that another court may make a
determination as to priority and that the bankruptcy
trustee has expressly disclaimed any interest in
Tammy's one-half of the proceeds, it is clear that Peter's
levy does not interfere with "orderly administration by
the primary tribunal." [Fredd v. Darnell, 107 N.J. Eq.
249, 253 (Ch. 1930)].
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Additionally, the judge dismissed the DBR creditors' assertion that the
funds were in custodia legis because, as an agent of Claudio's bankruptcy
trustee, the title company was "an officer of the [c]ourt." Instead, relying on the
bankruptcy order and the applicable HUD-1 statement, the judge determined
"the role of the title company" was that of a "settlement agent" acting "in the
normal course of selling . . . property." According to the judge, "[m]erely
directing the settlement agent to hold the funds pending further determination
does not make it an officer of the court."
The judge also described the DBR creditors' argument that the sale
proceeds retained "the legal character of real property, as opposed to personal
property," as "legal fiction." However,
even if, [arguendo], Tammy's share of the proceeds is
to be considered as real property, the argument only
succeeds if [Peter] did not make a good faith effort to
determine if Tammy had personal property prior to
levying upon the proceeds. In the case at bar, Tammy
appeared for a deposition and testified that she had no
assets capable of being levied. . . . [T]he [c]ourt finds
that Peter has made a good faith effort to locate
Tammy's personal property.
II.
On appeal, the DBR creditors renew the arguments rejected by the judge,
primarily arguing that Tammy's one-half share of the Princeton property's sale
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proceeds was held by the title company in custodia legis and was therefore
"immune from [Peter]'s levy." While we recognize that "[a] trial court's
interpretation of the law and the legal consequences that flow from established
facts are not entitled to any special deference[,]" Manalapan Realty, L.P. v. Twp.
Comm. of Manalapan, 140 N.J. 366, 378 (1995), and are instead reviewed de
novo, we affirm substantially for the reasons articulated by Judge Goodzeit in
her sage statement of reasons. We add the following comments.
"Property is considered to be in custodia legis when it is 'in the custody of
the law.'" N.J. Realty Concepts, LLC v. Mavroudis, 435 N.J. Super. 118, 124
(App. Div. 2014) (quoting Wilzig v. Sisselman, 209 N.J. Super. 25, 31 (App.
Div. 1986)). In New Jersey, "[i]t is a general rule that money or other property
in the hands of an officer of a court is regarded as being in custodia legis, and
in consequence ordinarily cannot be reached by execution in the absence of
legislative authority." Id. at 123-24 (alteration in original) (quoting Naglieri v.
Trabattoni, 20 N.J. Super. 173, 176 (App. Div. 1952)). "[T]he test of immunity
of property in custodia legis may in general be said to be whether substantial
confusion or embarrassment to the initial jurisdiction would result from the
enforcement of process against the property by another tribunal." Id. at 127
(quoting Naglieri, 20 N.J. Super. at 176). "The rationale of the rule is 'based
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upon a necessity, incident to orderly judicial procedure, for any court which has
acquired primary jurisdiction over property to continue the exercise of that
jurisdiction free from embarrassment or conflicts with other courts arising from
other claims against the same property.'" Culp v. Culp, 242 N.J. Super. 567, 572
(Ch. Div. 1990) (quoting Fredd, 107 N.J. Eq. at 253).
Here, Claudio's Bankruptcy Trustee was appointed as an officer of the
bankruptcy court and thereby served as an agent of Claudio's estate and
creditors. See Kernan v. One Wash. Park Urban Renewal Assocs., 154 N.J. 437,
452-53 (1998) ("Numerous cases have recognized that a trustee is the agent for
the bankruptcy court and for creditors."). However, the record does not support
the DBR creditors' contention that the title company served as the agent of
Claudio's bankruptcy trustee. As Judge Goodzeit recognized, the bankruptcy
order contains no provision mandating, or even suggesting, that the funds were
to be held in custodia legis. Moreover, the bankruptcy order does not provide
for, nor does the record reflect, any sort of accounting procedure that would be
required of a court officer holding funds in custodia legis. See Mavroudis, 435
N.J. Super. at 126 (holding "that a special fiscal agent [did not] hold[] property
in custodia legis" because the order appointing the agent "did not purport to
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place property in custodia legis[,]. . . [n]or did the order require the . . . periodic
accounts needed for the court to monitor property in the court's custody .").
Further, Claudio's Bankruptcy Trustee expressly disclaimed that Claudio's
estate had any interest in the funds held by the title company. Additionally, the
record does not reveal any sort of control or connection by and between
Claudio's Bankruptcy Trustee and the title company, which was selected and
paid by the Princeton property's buyer. Such control is a prerequisite to
establishing an agency relationship. See Kernan, 154 N.J. at 453 ("It is well-
established that '[a]n agency relationship is created when one party consents to
have another act on its behalf, with the principal controlling and directing the
acts of the agent.'" (alteration in original) (quoting Sears Mortg. Corp. v. Rose,
134 N.J. 326, 337 (1993))). Therefore, we agree with Judge Goodzeit that the
title company was not the agent of Claudio's Bankruptcy Trustee, and, as such,
was not an officer of the bankruptcy court. Accordingly, Tammy's share was
not held in custodia legis by the title company.
Relying primarily on Chancery Division cases, the DBR creditors
alternatively contend that once the bankruptcy court assumed subject matter
jurisdiction over Tammy's interest in the Princeton property in order to sell it as
part of Claudio's liquidation proceedings, "the relative priorities of exis ting
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judgment lienholders with respect to the [Princeton] [p]roperty and its proceeds
became fixed." We agree that the Princeton property was initially subject to the
bankruptcy court's jurisdiction as a result of Claudio listing it among his assets.
However, once Tammy's share was partitioned pursuant to applicable law, and
both Claudio's and Tammy's one-half interests were sold, Tammy's share ceased
to be under the jurisdiction of the bankruptcy court.
Equally unavailing is the DBR creditors' contention that the sale proceeds
retained the legal character of real property subject to their first-priority lien.
Indeed, once the Princeton property was sold pursuant to the bankruptcy order,
the DBR creditors' lien "with respect to the sold property" was "completely
extinguished" under long-established New Jersey law. New Brunswick Sav.
Bank v. Markouski, 123 N.J. 402, 413 (1991). At that juncture, "[i]rrespective
of when a judgment creditor obtains or dockets a judgment, the creditor who
levies first has priority over all nonlevying judgment creditors[,]" and "even a
junior levying creditor" has "priority over all senior nonlevying judgment
creditors in the distribution of the proceeds . . . ." Ibid. (citing N.J.S.A. 2A:17-
39). See also N.J.S.A. 2A:17-15.
Here, by levying upon the sale proceeds before the DBR creditors, Peter
gained first priority over the earlier DBR creditors' judgment. Moreover,
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contrary to the DBR creditors' assertion, Tammy maintained an undeniable
interest in the funds as evidenced by the bankruptcy order's provision that "no
amount shall be distributed or released by the [t]itle [c]ompany to Tammy . . .
until and unless the judgment liens have been satisfied[.]" See Terry v.
Owatonna Canning Co., 119 N.J.L. 455, 457 (1938) (explaining that a "levy
under a writ of attachment . . . 'operates only upon such rights in the property as
the debtor has at the time of the levy'") (quoting 6 C.J. 242)). To the extent we
have not addressed a particular argument, it is because either our disposition
makes it unnecessary or the argument was without sufficient merit to warrant
discussion in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed.
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