CARRINGTON MORTGAGE SERVICES, LLC VS. DAVID MOORE (F-007711-18, MONMOUTH COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4084-18T3
CARRINGTON MORTGAGE
SERVICES, LLC,
APPROVED FOR PUBLICATION
Plaintiff-Respondent,
June 10, 2020
v. APPELLATE DIVISION
DAVID MOORE and
ELIZABETH MOORE,
Defendants-Appellants,
and
HUDSON UNITED BANK n/k/a
TD BANK, MARY DUNBAR,
and STATE OF NEW JERSEY,
Defendants.
________________________________
Submitted May 26, 2020 – Decided June 10, 2020
Before Judges Sabatino, Sumners and Natali.
On appeal from the Superior Court of New Jersey,
Chancery Division, Monmouth County, Docket No. F-
007711-18.
John J. Hopkins, III, attorneys for appellants (John J.
Hopkins III, on the brief).
Law Offices of Shapiro & DeNardo, LLC, attorneys for
respondent (Elizabeth L. Wassall, on the brief).
The opinion of the court was delivered by
SABATINO, P.J.A.D.
Defendants, David and Elizabeth Moore, appeal the Chancery Division's
April 12, 2019 order denying their motion to vacate a default judgment of
mortgage foreclosure entered against them concerning their house in Port
Monmouth. We affirm.
I.
The Moores bought the house in March 2010, financed with a purchase
money mortgage of $152,192 from First Interstate Financial Corp ("First
Interstate"). In July 2012, First Interstate assigned the mortgage to Bank of
America, N.A. Eventually, the mortgage was assigned, in turn, to the plaintiff
in this case, Carrington Mortgage Services, LLC ("Carrington").
On October 29, 2012, the house was severely damaged by flooding during
Superstorm Sandy. The local building inspector determined the damage to the
house was so extensive that it needed to be rebuilt.
In February 2015, the Moores defaulted on their mortgage payments.
They have not made any payments in the ensuing five years.
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The Moores attempted to get payment from their flood insurance company
and their homeowners' insurer. When those efforts failed to produce a
satisfactory recovery, the Moores filed a lawsuit in April 2015 in the United
States District Court for the District of New Jersey against the two insurance
companies.
The Moores also named as a co-defendant in their federal action Bank of
America, Carrington's predecessor in interest. Among other things, the federal
complaint claimed the bank should be discharged from its right to receive
mortgage payments from the Moores, and instead only get recovery from
whatever insurance proceeds were payable. The Moores also sought from the
bank a refund of mortgage payments that they had previously made, arguing that
a so-called "novation of contract" following the superstorm had relieved them
of their duty to pay.
The bank and the two insurers each moved to dismiss the federal lawsuit.
On April 22, 2016, District Judge Madeline Cox Arleo granted the bank's
motion.1
1
Appellants' counsel has only furnished us with a portion of the materials from
the federal litigation. Counsel did supply a copy of the April 22, 2016 order
dismissing the claims against the bank. However, counsel did not supply us
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In addition, the District Judge granted summary judgment dismissing the
Moores' claims against their homeowners' insurer, finding those claims were
time-barred under the terms of the policy. 2 Later, in 2018, the District Judge
also granted summary judgment to the flood insurance company, likewise
concluding those claims were time-barred.3 The Moores apparently did not
appeal those orders.
In April 2018, Carrington filed the present mortgage foreclosure action.
The Moores did not respond to the foreclosure complaint, or Carrington's
with a transcript or copy of the judge's reasoning, or a copy of the bank's motion
papers specifying the grounds on which it had based its dismissal motion.
2
Moore v. Farmers Mut. Fire Ins. Co. of Salem Cty., et al, No. CV 15-6418,
2016 WL 11220847, at *1 (D.N.J. Apr. 20, 2016). We take judicial notice of
this opinion pursuant to N.J.R.E. 201, and we cite to it pursuant to the exception
of Rule 1:36-3. The opinion reflects that, before filing suit, the Moores did
obtain a modest net recovery of $439.97 ($1,439.97, minus a $1,000 deductible)
from the homeowners' insurer. Ibid.
3
Moore v. Farmers Mut. Fire Ins. Co. of Salem Cty., et al., No. CV 15-6418,
2018 WL 10151931, at *1 (D.N.J. Sept. 17, 2018). We likewise take judicial
notice of this related opinion. The opinion reflects that the flood insurer did
issue a pre-suit check jointly to the Moores and the bank in March 2013 for the
sum of $64,611.93. Ibid. We are not advised how much, if any, of that payment
was received by the Moores or used for repairs, and how much, if any, was taken
by the bank and applied to the outstanding mortgage loan.
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summary judgment motion and defaulted. Final judgment was entered against
them on December 11, 2018.
The Moores made two unsuccessful emergent attempts in the trial court to
stay the Sheriff's sale, but it nevertheless went forward. The property was
acquired at auction by Carrington in March 2019.
The Moores moved under Rule 4:50-1 to vacate the default judgment.
They chiefly argued that, under the entire controversy doctrine, Carrington
cannot litigate the foreclosure case in state court because its predecessor , Bank
of America, was a party in the earlier federal action. They contended the bank
was obligated to file a counterclaim against them in the federal case to protect
its rights but did not do so. They argued the entire controversy doctrine thereby
precludes the mortgagee from filing suit for foreclosure in state court.
After hearing oral argument, Judge Katie A. Gummer issued a lengthy oral
decision rejecting the Moores' contentions and denying their motion to set aside
the foreclosure judgment.
II.
On appeal, the Moores reiterate their contention that Carrington's right to
pursue a foreclosure action in this state court is barred by the previous federal
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litigation concerning insurance coverage. 4 We reject that argument,
substantially for the wise reasons detailed in Judge Gummer's bench opinion.
We amplify the judge's analysis with several observations.
In general, the disposition of a motion under Rule 4:50-1 to vacate a
judgment is entrusted to the discretion of the trial court. Hodgson v. Applegate,
31 N.J. 29, 37 (1959). The trial court's decision to grant or deny such a motion
should not be disturbed on appeal unless it represents a "clear abuse of
discretion." Hous. Auth. of Morristown v. Little, 135 N.J. 274, 283-84 (1994);
Orner v. Liu, 419 N.J. Super. 431, 435 (App. Div. 2011). The judge in this case
did not misapply her discretion in denying relief to the Moores, because she
correctly recognized that their invocation of the entire controversy doctrine is
critically flawed.
The entire controversy doctrine, as codified in Rule 4:30A, generally
requires parties to an action to raise all transactionally related claims in that
4
The Moores also raised an argument in their reply brief below asserting that the
foreclosure complaint was not properly served upon them. Judge Gummer held it
was improper to raise this argument for the first time in the reply brief and, moreover,
there was no "certification of someone with personal knowledge as required
under Rule 1:6-6." We agree that their "unsigned, unsupported" assertion of
improper service is inadequate and accordingly reject this barely asserted
argument on appeal.
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same action. As our Supreme Court recently noted, the "doctrine 'seeks to impel
litigants to consolidate their claims arising from a single controversy whenever
possible.'" Dimitrakopoulos v. Borrus, Goldin, Foley, Vignuolo, Hyman &
Stahl, P.C., 237 N.J. 91, 98 (2019) (quoting Thornton v. Potamkin Chevrolet, 94
N.J. 1, 5 (1983)). "The doctrine serves 'to encourage complete and final
dispositions through the avoidance of piecemeal decisions and to promote
judicial efficiency and the reduction of delay.'" Ibid. (quoting Wadeer v. N.J.
Mfs. Ins. Co., 220 N.J. 591, 610 (2015)).
Subject to equitable considerations, the doctrine disfavors successive suits
regarding the same controversy. See DiTrolio v. Antiles, 142 N.J. 253, 267
(1995). Therefore, when a party fails to assert a claim that the entire controversy
doctrine required be joined in an action, the court has the authority to bar that
claim. R. 4:30A.
Even so, "the boundaries of the entire controversy doctrine are not
limitless. It remains an equitable doctrine whose application is left to judicial
discretion based on the factual circumstances of individual cases." Highland
Lakes Country Club & Cmty. Ass'n v. Nicastro, 201 N.J. 123, 125 (2009)
(quoting Oliver v. Ambrose, 152 N.J. 383, 395 (1998)). As such, "the polestar
for the application" of the doctrine is "judicial fairness," and "a court must apply
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the doctrine in accordance with equitable principles, with careful attention to
the facts of a given case." Dimitrakopoulos, 237 N.J. at 114 (quoting K-Land
Corp. No. 28 v. Landis Sewerage Auth., 173 N.J. 59, 74 (2002)).
The doctrine should not be applied "where to do so would be unfair in the
totality of the circumstances and would not promote any of its objectives,
namely, the promotion of conclusive determinations, party fairness, and judicial
economy and efficiency." Dimitrakopoulos, 237 N.J. at 114 (quoting K-Land,
173 N.J. at 70). When analyzing fairness, "courts should consider fairness to
the court system as a whole, as well as to all parties." Wadeer, 220 N.J. at 605.
The doctrine applies to successive suits with related claims. DiTrolio, 142
N.J. at 267. "In determining whether successive claims constitute one
controversy for purposes of the doctrine, the central consideration is whether the
claims against the different parties arise from related facts or the same
transaction or series of transactions." Ibid. It is the factual context "giving rise
to the controversy itself, rather than a commonality of claims, issues or parties,
that triggers the requirement of joinder to create a cohesive and complete
litigation." Mystic Isle, 142 N.J. at 323 (citing DiTrolio, 142 N.J. at 267-68).
The court, not the parties, retains the ultimate authority to control the
joinder of parties and claims. Id. at 324. Application of the entire controversy
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doctrine is "'left to judicial discretion based on the factual circumstances of
individual cases.'" Oliver v. Ambrose, 152 N.J. 383, 395 (1998) (quoting
Brennan v. Orban, 145 N.J. 282, 291 (1996)). The doctrine's joinder
requirements may be relaxed on the grounds of "equitable considerations." Id.
at 395-96.
The impact of the entire controversy doctrine is more limited in the
context of foreclosure actions. As Rule 4:64-5 instructs:
Unless the court otherwise orders on notice and for
good cause shown, claims for foreclosure of mortgages
shall not be joined with non-germane claims against the
mortgagor or other persons liable on the debt. Only
germane counterclaims and cross-claims may be
pleaded in foreclosure actions without leave of court.
Non-germane claims shall include, but not be limited
to, claims on the instrument of obligation evidencing
the mortgage debt, assumption agreements and
guarantees. A defendant who chooses to contest the
validity, priority or amount of any alleged prior
encumbrance shall do so by filing a cross-claim against
that encumbrancer, if a co-defendant, and the issues
raised by the cross-claim shall be determined upon
application for surplus money pursuant to R. 4:64-3,
unless the court otherwise directs.
[R. 4:64-5 (emphasis added).]
In applying these principles, the trial court first observed that it had not
been provided with the note for the property, the insurance policies at issue in
the federal lawsuit, any motion papers from that case, or any documents
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describing the court's decision to grant summary judgment to any of the parties.
The court therefore reached its decision on the only papers before it, i.e., the
Moores' federal complaint and the federal court's dismissal order.
The trial court did recognize that the entire controversy doctrine
conceivably could apply to a federal action. See, e.g., Rycoline Prod., Inc. v. C
& W Unlimited, 109 F.3d 883, 887 (3d Cir. 1997) ("A federal court hearing a
federal cause of action is bound by New Jersey's Entire Controversy Doctrine,
an aspect of the substantive law of New Jersey, by virtue of the Full Faith and
Credit Act."). However, based on the contents of the Moores' complaint, the
trial court concluded that the doctrine did not apply in this case.
The court found that the claim against Carrington's predecessor in interest
was "as a direct defendant for a direct claim for reimbursement of mortgage
payments" already paid on the damaged home. It held "[t]here’s no claim in that
Federal lawsuit that [the mortgagee] had any kind of an obligation to bring or
pursue an insurance claim against the insurance companies." There was no
evidence that it was the mortgage-holder's responsibility to pursue these
insurance claims.
The trial court further noted the Moores had not cited any case law or
other legal support for their argument that a bank was required to bring a
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foreclosure action in a federal proceeding or, in the alternative, that "the bank
had an obligation to attempt to obtain insurance benefits." The court expressed
doubts about a federal court's willingness to exercise jurisdiction over a
foreclosure case. It concluded that the allegations in the present state
foreclosure case "simply do not arise out of the transactional circumstances at
issue in the Federal case."
We recognize that, in some circumstances, a mortgage foreclosure action
may be brought in federal court under 28 U.S.C. § 1332 diversity jurisdiction.
Nat'l City Mortg. Co. v. Stephen, 647 F.3d 78, 80 n.2 (3d Cir. 2011), as amended
(Sept. 29, 2011) (observing that such federal cases had become "more common
due to congested state court dockets" following the 2008 financial crisis).
Federal courts also may hear claims related to foreclosures under 28 U.S.C. §
1331 federal question jurisdiction, where the mortgagor raises a claim under
federal law. See, e,g., St. Clair v. Wertzberger, 637 F. Supp. 2d 251, 253 (D.N.J.
2009) (finding federal question jurisdiction where mortgagor raised claims
under federal law in defense of pending state foreclosure proceeding).
Even where jurisdiction is appropriate, federal courts may decline to
adjudicate foreclosure actions for sound jurisprudential reasons. Id. at 255
(dismissing a foreclosure claim asserted in federal court on grounds of
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abstention where it would unreasonably interfere with a parallel, ongoing action
in state court).
We share with the trial court substantial doubts that the federal court
would have exercised jurisdiction over a mortgage foreclosure claim by the bank
if it had chosen to plead it as a counterclaim against the Moores. We are
unpersuaded that such a counterclaim would have been compulsory under
Federal Rule of Civil Procedure 13(a), since the Moores' lawsuit concerned their
insurers' denial of their claims for benefits and not their unpaid mortgage loan.
We are also doubtful of the jurisdictional basis that could support such a
counterclaim, since the Moores did not bring their lawsuit under diversity
jurisdiction and there is no federal question of law implicated by the Moores'
claim against Bank of America based on the mortgage contract.
But, even assuming federal jurisdiction over the mortgage foreclosure
claims hypothetically was present, we discern no legal or equitable basis to hold
that the foreclosure claims had a sufficient transactional nexus to the Moores'
insurance disputes to require them to be asserted in the federal case.
The series of dismissal orders from the District Court reveals that none of
the Moores' claims in the federal lawsuit were viable. There was no need to
latch onto those weak and rather short-lived federal claims a viable state-law
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foreclosure case that could be properly litigated in the Superior Court. This state
court, not the federal court, has day-to-day expertise in foreclosure matters. It
would make little practical sense to force the bank to bring its foreclosure clai ms
in that other forum.
As the trial court noted, the Moores' federal complaint itself does not
appear to suggest that there is a transactional relationship between a potential
foreclosure and the insurance claims. The Moores' specific complaint against
the mortgage holder did not allege it was required to seek payment from the
insurance companies. Instead, the federal complaint asserts that the destruction
of the home voided the mortgage contract, and that the Moores therefore were
owed mortgage payments already made after they had been "relieved of that
obligation." The remainder of the complaint is focused on the insurance
providers. In fact, in their present brief the Moores assert they brought suit to
compel the insurance companies to "to pay the mortgage and remaining
damages." The only relationship between the mortgage holder and the insurance
companies is the assertion that the mortgage holder was a named recipient of the
insurance policy, and that the mortgage company paid monthly insurance
premiums from the monthly payments the Moores made on the mortgage.
Although the mortgage holder could be joined to dispute the insurance claims,
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the Moores make no other arguments that the insurance companies were obliged
to pay the mortgage holder, or that the mortgage holder was required to compel
them to use the allegedly deficient insurance proceeds to pay off the mortgage.
At best, the mortgage holder might well be precluded from pursuing
claims under the insurance policies in a subsequent action. The absence of any
stated relationship in the federal complaint between the claim against the
mortgagors and the claims against the insurance companies suggests that, in fact,
there was no transactional relationship between these claims.
The Moores' arguments in this appeal crucially depend upon the contract
between themselves and the lender. There appear to be at least two distinct
arguments: (1) the mortgage loan contract was a novation, or was void, after
Superstorm Sandy; and (2) the lender had a duty to seek the insurance proceeds
under either common law principles or the contract itself, and the failure to do
so precludes its successor from bringing a subsequent foreclosure action. We
reject both of those assertions.
The first assertion is that when Superstorm Sandy destroyed the property,
it either constituted a novation in the mortgage contract or constituted changed
circumstances sufficient to void the contract. The Moores argue that, because
of the storm damage, they were no longer required to pay the mortgage, and that
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therefore the mortgage holder was obligated to seek mortgage payments from
the insurers. These contentions are without merit.
The Moores' argument that there was a "novation" is clearly incorrect. A
novation is "a type of substituted contract that has the effect of adding a party,
either as obligor or obligee, who was not a party to the original duty."
Restatement (Second) of Contracts § 280 (Am. Law. Inst. 1981). There is no
claim or evidence that a substitute contract between any of the parties was ever
made, nor an explanation for how Superstorm Sandy would be the triggering
event for a new mortgage contract.
Furthermore, the Moores' arguments are squarely repudiated by our
opinion in Sovereign Bank, FSB v. Kuelzow, 297 N.J. Super. 187 (App. Div.
1997). In that case, a mortgagor's home was destroyed in a storm. The
mortgagors sought to recover insurance payments to rebuild the property and
pay off the mortgage but, through no fault of their own, the insurance case was
delayed for years. Id. at 196-97. In the meantime, the mortgagee successfully
pursued a foreclosure action. This court delayed the final delivery of the
sheriff's deed, and the termination of the homeowners' equity of redemption, to
allow the defendant mortgagors time to conclude their lawsuit against the
insurance providers. Id. at 197-98. Notably, the court emphasized that
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regardless of the outcome of the insurance dispute, the mortgage holder "must,
of course, receive its full contract payments until that date, thus suffering no
harm." Id. at 197.
The destruction of the mortgagor's home in Kuelzow did not affect the
plaintiff bank's right to the mortgage debt or its right to foreclose. Principles of
equity only allowed the mortgagors a fair opportunity to obtain money that could
allow them to pay off the default. Ibid. The same principle applies here—the
destruction of the Moores' home does not preclude Carrington from enforcing
the obligations of the mortgage contract against them. Carrington was entitled
to the balance of the mortgage payments, and could pursue foreclosure if those
payments were not met.
The mortgage contract itself bears this out. It specifically states that, in
the event of loss or damaged property, the mortgage holder (Carrington or its
predecessors) can apply insurance proceeds either towards repairs or to the
balance of the mortgage, but that "[a]ny application of the proceeds to the
principal shall not extend or postpone the date of the monthly payments which
are referred to in paragraph 2, or change the amount of such payments."
Paragraph Two, in turn, covers monthly "taxes, insurance, and other charges."
In other words, the mortgagors are still obliged to keep up insurance and other
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payments in the event of loss. Additionally, neither clause nullifies or modifies
paragraph 1, which requires the mortgagor to "pay when due" the principal and
debt owed on the mortgage. The contract specifies that, even in the event of
loss or damage to the property, the obligation of the mortgagees to continue to
make payments they otherwise owe through the mortgage contract is unaffected.
The Moores further argue, by analogy, that a mortgage holder is akin to a
landlord and has the same duty to mitigate damages as a landlord does when
seeking rent from a defaulting tenant, citing Somer v. Kridel, 74 N.J. 446, 456-
57 (1977). This contention is unavailing.
A mortgage holder is not akin to a landlord. Unlike a landlord, who can
rent out a vacant apartment to a new tenant and thereby reduce the debt of a
defaulting, previous tenant, a mortgage holder has only a security interest in a
property with no control over the land itself until a foreclosure and deed transfer
is completed.
"Nothing is better settled in New Jersey than the rule that, in the absence
of a contrary agreement between the parties, the mortgagor has the exclusive
right to possession of the mortgaged property until default in performance of the
conditions of the mortgage." 29 N.J. Practice, Law of Mortgages § 14.1 (Myron
C. Weinstein) (2d ed.); see also McCorristin v. Salmon Signs, 244 N.J. Super.
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503, 508 (App. Div. 1990) ("[P]rior to default, a mortgagor has the exclusive
right of possession and all of the incidents related thereto. . . . The mortgagee is
not the owner of the property unless there is a foreclosure and sale to the
mortgagee."). A mortgagee can only vindicate its interests in the loan by
bringing a foreclosure action; that is what Carrington appropriately did here.
The Moores also argue there is a duty based in the mortgage contract,
because the contract obligates the mortgagor to obtain insurance, and allows the
mortgage holder to impound insurance payments to pay off the mortgage.
Related to this point, the Moores argue that, as a sophisticated business entity,
the mortgage holder has a responsibility to pursue recovery after other
sophisticated parties, here the insurance providers, rather than the homeowners.
Contrary to their claims, the mortgage contract demonstrates that there is
no transactional relationship because the insurance clauses in the contract do not
affect the Moores' obligation to pay the debt. In general, a " mortgagee has
absolutely no interest in the proceeds of the mortgagor's insurance in the absence
of an agreement to insure for his benefit." 29 N.J. Practice, Law of Mortgages
§ 14.5(Myron C. Weinstein) (2d ed.) (describing this is "the universal rule" and
citing cases nationwide); Midland Lumber & Supply, Inc. v. J.P. Builders, 265
N.J. Super. 246, 249 (Law. Div. 1993) (holding a contract of insurance is
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personal to the insured person, not property, and a lien holder, by virtue of its
lien, is not automatically entitled to insurance proceeds). Therefore, mortgage es
regularly protect their property interest by including a clause in the mortgage
contract requiring the mortgagor to carry insurance. Id. at 250.
As the Moores note, their mortgage contract had such a clause requiring
them to purchase insurance on the property. As already described, however, the
contract demonstrates that an insurance payout and the underlying mortgage are
not related. The contract specifies that insurance payouts do not affect a
mortgagor's monthly obligations to make insurance payments, and are not tied
to their obligation to make payments toward the underlying debt. As such, the
Moores' obligation to make mortgage payments was independent of the results
of any insurance claim. Contrary to their arguments, the mortgage contract
provides that the mortgage holder's right to the principal is not tied to insurance
on the property, and that the duty to continue to repay the mortgage loan rests
with the mortgagors.
Lastly, from a policy perspective, the Moores' arguments, if vindicated,
could pose significant problems for homeowners. A requirement that a
mortgage holder has a duty to involve itself in every insurance dispute between
a homeowner and insurance company, or otherwise risk losing the right to
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foreclose on the mortgage, would upset the well-established and firmly held
rights of mortgage holders to pursue foreclosure. It would entangle foreclosure
claims in other lawsuits. This practice could discourage the issuance of
mortgage loans in the first place. A further requirement that a mortgage holder
preemptively bring a foreclosure action whenever homeowners sought to
recover insurance proceeds on their property would greatly add to the burdens
of mortgagors in an already stressful situation.
In sum, caselaw and other legal precedent clearly establish the right of a
mortgage holder such as Carrington to receive mortgage payments, even after
loss or damage to property, and to foreclose in the event of default. The Moores
seek to invert this relationship by requiring a mortgage holder to risk losing this
right unless it actively takes part in lawsuits to recover insurance proceeds on
damaged property. The entire controversy doctrine should not be used to do so.
The trial court sensibly disallowed that from occurring.
Although the circumstances of appellants, who lost their home in the wake
of a devastating natural disaster, are surely sympathetic, their legal arguments
are simply without merit. We need not comment on any further points made or
suggested in their brief. R. 2:11-3(e)(1)(E).
Affirmed.
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