Opinion
DOCKET NO. A-2925-13T4
07-30-2015
BANK OF AMERICA, NA, Plaintiff-Respondent, v. EINHORN CONSTRUCTION COMPANY, L.L.C., a New Jersey limited liability company, CAROL KLEIN, as executrix of the ESTATE OF DAVID CHABIN a/k/a DAVID CHABAN, and PAULINE CHABIN a/k/a PAULINE CHABAN, Defendants, and EDWARD EINHORN, as guarantor, Defendant-Appellant.
Edward Einhorn, appellant pro se. Wilson, Elser, Moskowitz, Edelman & Dicker, L.L.P., attorneys for respondent (Daniel F. Flores, of counsel and on the brief; Tana Bucca, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Ashrafi and O'Connor. On appeal from the Superior Court of New Jersey, Chancery Part, Atlantic County, Docket No. F-42540-10. Edward Einhorn, appellant pro se. Wilson, Elser, Moskowitz, Edelman & Dicker, L.L.P., attorneys for respondent (Daniel F. Flores, of counsel and on the brief; Tana Bucca, on the brief). PER CURIAM
In this foreclosure action, defendant Edward Einhorn, a guarantor of his construction company's mortgage loans from plaintiff Bank of America, appeals from three orders that granted summary judgment to the bank, denied his motion for reconsideration, and overruled his objection to entry of the foreclosure judgment. We affirm.
Einhorn's defense to the foreclosure action was that the bank breached oral terms of the loan agreement by failing to disburse funds that were needed to complete construction, and that this breach caused defendant Einhorn Construction Company, L.L.C., to default in payments that were due. The bank disputed that any oral terms changed the written loan agreement.
Viewed most favorably to Einhorn as the party opposing summary judgment, see R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), the record reveals the following facts and procedural history.
In 2006, Einhorn applied to the bank on behalf of Einhorn Construction for loans to build homes on a twenty lot subdivision in Buena and Buena Vista Township. As part of the application, he submitted detailed plans and cost estimates for the subdivision. Based on an estimate of building costs of about $160,000 for each 2,000 square foot house that was planned, the bank approved two loans totaling $3,600,000.
The loans were a $1,200,000 Acquisition and Development (A&D) loan and a $2,400,000 revolving line of credit for the construction of the homes (Construction Revolver). In a November 2, 2006 letter to Einhorn, which the bank calls a "term sheet," Douglas R. Doerr, a senior vice president of the bank, set forth the terms of the loan agreement. The term sheet used the phrase "the loan" to refer to both loans. Under the subheading "Loan Funding," the sheet stated: "The loan will be eligible for disbursement on a percentage-of-completion basis as construction is completed at the Project. Disbursements shall be subject to the Bank's review and approval of a construction schedule, as well as a construction budget."
The term sheet broke down the A&D loan into $850,000 for "Site Improvements," $210,000 for "Soft Costs," $40,000 designated as a "Contingency," and $100,000 for an "Interest Reserve." It also described the "the following sub-limits" applied to the Construction Revolver: "The amount per unit will be at the lesser of 80% of the market value or contracted price for pre-sold units, not to exceed $240,000. Said amount shall include the lot release price of $75,000." Another provision in the term sheet indicated the "Release Prices" to be $75,000 per lot for the A&D loan and 100% of funds advanced for the Construction Revolver.
As we understand it, the release price was the amount of the loans that Einhorn Construction would have to repay to the bank as each home was completed and sold so that the bank would release that lot and house from the encumbrance of its mortgage on the property.
After Einhorn signed the term sheet indicating agreement in principle with its terms, the attorney for the bank prepared loan documents consisting of a Master Loan Agreement ("loan agreement"), two promissory notes, a mortgage and security agreement, and a limited guarantee of payment executed by Einhorn individually.
Einhorn's guarantee did not require that he cure defaults under all conditions. It guaranteed payment if Einhorn Construction filed for bankruptcy or if certain other contingencies occurred. The bank has not sought to recover the sums due on the loans from Einhorn but named him as a defendant in the foreclosure action because of his purported interest in the property. --------
Attorneys for the bank prepared the formal papers in conformity with the term sheet, and Einhorn executed all the loan documents on February 6, 2007. According to the loan agreement, the loans were issued for the purpose of constructing homes on the lots, and the loan funds were to "be used solely to develop the Land and fund construction of Units for which the Bank has approved the Plans." The bank was not required to disburse funds "for purposes other than those contemplated" in the agreement.
In 2008, after several homes were built, the bank learned that Einhorn Construction "had substantially increased the size of the homes without notifying" the bank or obtaining its approval. Because of that deviation from the approved plans, and because the bank learned that Einhorn Construction was delinquent in payments to other creditors including subcontractors, the bank transferred the loan internally to its Special Assets Group. According to Einhorn, the transfer made it more difficult for him to obtain disbursements of loan funds. Subsequently, the bank provided notices to Einhorn Construction that the loans were in default for failure to make payments and for other breaches of the loan agreement. When the defaults were not cured, the bank filed this foreclosure action in September 2010.
Einhorn and Einhorn Construction, represented jointly by one law firm, filed an answer and a counterclaim. The defense pleadings were then amended several times over the next year. The bank's early summary judgment motion was denied, and extensive discovery ensued. Eventually, the law firm that represented both defendants withdrew from the case. Several months later, Einhorn notified the court that he would proceed pro se, and he engaged the services of another law firm to represent Einhorn Construction to comply with an order of the court in that regard.
In his pleadings, Einhorn conceded that the term sheet he signed provided that the $240,000 per unit "sub-limit" included both the $75,000 lot release price and the remaining construction draw. This meant that a maximum of $165,000 in loan funds was available for the construction of each home. The balance of $75,000 available through the Construction Revolver would be used to pay back a portion of the A&D loan attributable to that lot.
Einhorn claimed that he approached the bank and sought a change in the proposed loan agreement so that he could utilize the entire $240,000 for construction of each house and pay the $75,000 lot release price at the time the house was sold rather than from the construction draw. Doerr testified in deposition that he met with Einhorn several times and, while Einhorn expressed his belief that $240,000 in construction funds were needed per lot, the bank never agreed and would not have agreed to change the terms of the loan as Einhorn requested. The bank had obtained a feasibility review from an independent consultant, which led the bank to conclude there was an inadequate demand in the area for larger, more expensive houses. The $240,000 referred to in paragraph 3.3 of the loan agreement included the $165,000 per lot construction loan and $75,000 lot release price.
During the litigation, the trial court entered a number of case management orders. A "Supplemental Management Order" dated January 31, 2013, set a schedule for completion of a number of depositions and added that "[n]o other discovery will be permitted." A final "Case Management Order" dated March 14, 2013, set forth a briefing schedule for the bank's proposed summary judgment motion. After these orders were entered, Einhorn served requests for admissions upon the bank pursuant to Rule 4:22-1 without first seeking the court's permission to do so. The attorneys for the bank acknowledged receiving the requests but declined to answer them on the ground that the discovery period had ended.
In his opposition to the bank's motion for summary judgment, Einhorn claimed that the bank had breached the loan agreement by failing to provide a lump sum disbursement of $850,000 from the A&D loan and that the bank had agreed orally to allow Einhorn Construction to expend $240,000 per house from the Construction Revolver. He claimed the bank had caused the default in payments by failing to provide the A&D loan funds and by failing to use the interest reserve and contingency amounts the bank had withheld from the $1,200,000 A&D loan to pay amounts that Einhorn Construction had not repaid in time.
The attorney for Einhorn Construction filed only a short letter stating that the company would join in Einhorn's pro se opposition to the bank's summary judgment motion. The trial court was critical of this manner of attempting to oppose summary judgment. The court believed such a tactic was a violation of Rule 1:21-1(c) prohibiting representation of a business entity by a non-lawyer, namely, Einhorn as the company's principal member. Nevertheless, the court addressed and rejected Einhorn's opposition, stating that the loan documents did not provide terms as he argued and they entitled the bank to summary judgment.
On appeal, Einhorn argues error in the court's decision because the bank failed to respond to his requests for admissions, thus admitting those requests, see R. 4:22-1, and showing that the bank was not entitled to summary judgment. He disputes that the loan documents set all the terms of the loan agreement and claims that the bank caused the default by failing to provide funds for the development project as agreed. We reject these arguments and agree with the trial court that Einhorn could not change the written terms of the loan documents by alleging oral changes. We add that the absence of the bank's response to his request for admissions cannot alter that fundamental ground for the bank's entitlement to judgment.
Requests for admissions are included in the general category of "discovery" in our court rules. R. 4:10-1. However, Rule 4:24-1(a) provides an exception for requests for admissions from the discovery that must be completed within the designated discovery period. See also Pressler & Verniero, Current N.J. Court Rules, comment 1 on R. 4:24-1 (2015) ("Excepted from the discovery period are proceedings pursuant to . . . R. 4:22 (request for admissions) . . . ."); 42 New Jersey Practice, Discovery § 6.2, at 618 (S. Robert Allcorn) (2d ed. 2006) (Request for admissions "have the unusual advantage of not being governed by the general limitation of the 150 days for discovery prescribed by Rule 4:24-1.").
On the other hand, pretrial proceedings in this case were governed by the case management orders the trial court entered, in particular, the orders of January 31 and March 14, 2013. Since those orders made no provision for the use of requests for admissions, we infer that Einhorn did not ask for leave to serve his requests and the court did not contemplate use of that discovery device. Without the court's leave in the face of specific discovery and summary judgment management orders, Einhorn could not utilize that procedural device in an attempt to create factual disputes for the anticipated summary judgment motion.
Furthermore, Einhorn did not argue in his written opposition that the absence of the bank's responses to his requests for admissions demonstrated factual disputes that precluded summary judgment. Although that argument was made orally to the trial court, the court was not required under the provisions of Rule 4:46-2(b) and (c) to consider those oral representations as sufficient to oppose summary judgment. Einhorn did not preserve the issue in the trial court, and so, may not pursue it on appeal. See State v. Robinson, 200 N.J. 1, 20-21 (2009); State v. Arthur, 184 N.J. 307, 327 (2005).
We need address only in passing Einhorn's argument that the trial court erred in disregarding the opposition to summary judgment because the attorney for Einhorn Construction did not file substantive opposition papers and only joined in Einhorn's pro se opposition. First, Einhorn Construction did not appeal from the summary judgment order. Therefore, the issue is moot. Second, the trial court did in fact address Einhorn's pro se opposition.
As to the merits of the opposition, Einhorn's certification could not overcome the express terms of the loan agreement. To establish its prima facie right to foreclosure on a summary judgment motion, a mortgagee must show "the validity of the mortgage, the amount of the indebtedness, and the right of the mortgagee to resort to the mortgaged premises." Great Falls Bank v. Pardo, 263 N.J. Super. 388, 394 (Ch. Div. 1993), aff'd 273 N.J. Super. 542 (App. Div. 1994); see also Thorpe v. Floremoore Corp., 20 N.J. Super. 34, 37 (App. Div. 1952) (holding that a prima facie right to foreclosure is made out when the execution, recording, and non-payment of the mortgage is established). Here, the bank made that prima facie showing.
There was no issue regarding the execution of the loan documents, the recording of the mortgage, and Einhorn Construction's default in making payments when due under the loan agreement. Einhorn's arguments pertained to the terms of the loan agreement and the bank's alleged failure to provide funds or to make use of reserved loan funds as promised. The trial court, however, found "there is virtually no ambiguity in the language of the documents."
Einhorn argues the loan documents are in fact ambiguous. In his certification in opposition to summary judgment, he stated that he approached the bank before closing on the loans and received permission to use $240,000 per unit for construction. He claimed that section 7.16 of the loan agreement indicates that the release payment for each lot could be made from the proceeds of the sale of the finished house rather than from the construction draw on that lot. He also claimed that the bank failed to provide funds in a lump sum on the A&D loan as it promised to do, thus causing financial hardship on Einhorn Construction that resulted in its default on payments as they were due.
The trial court ruled that Einhorn could not rely on parol evidence to contradict the written terms of the loan agreement. That ruling was correct. "In general, the parol evidence rule prohibits the introduction of evidence that tends to alter an integrated written document." Conway v. 287 Corporate Ctr. Assocs., 187 N.J. 259, 268 (2006) (citing Restatement (Second) of Contracts § 213 (1981)). The rule excludes testimony "only when it is offered for the purpose of 'varying or contradicting' the terms of an 'integrated' contract; it does not purport to exclude evidence offered for the purpose of interpreting and giving a meaning to those terms." Atl. N. Airlines, Inc. v. Schwimmer, 12 N.J. 293, 302 (1953) (quoting 3 Corbin on Contracts, § 579 (1951)); see also Conway, supra, 187 N.J. at 269 (noting that New Jersey follows the view of parol evidence articulated by Professor Corbin). Here, Einhorn sought to alter the terms stated in the written loan documents.
Moreover, the trial court found that Einhorn's certification was "a sham affidavit" because it contradicted in material ways his answer to the bank's complaint and his deposition testimony. The phrase sham affidavit "refers to the trial court practice of disregarding an offsetting affidavit that is submitted in opposition to a motion for summary judgment when the affidavit contradicts the affiant's prior deposition testimony" and when "the contradiction is unexplained and unqualified by the affiant." Shelcusky v. Garjulio, 172 N.J. 185, 194 (2002). Here, the court noted that: (1) Einhorn had previously admitted the plans provided to the bank stated the total construction of each home would be $160,000; (2) he first admitted default and then denied there was a default; (3) he admitted the amount due on the claim and then disclaimed it; and (4) he admitted the interest reserve account was to cover interest payments and then disclaimed that statement.
The term sheet signed by Einhorn states that the $240,000 per unit Construction Revolver is to include the lot release price of $75,000. The loan agreement states that the loan proceeds are to be utilized solely for the construction of units in accordance with the approved plans. Except for his certification, Einhorn provided no evidence to support his claim that those provisions of the loan agreement were orally altered before the loan documents were executed.
Furthermore, paragraph 7.16 of the loan agreement does not contradict the bank's claim that the $75,000 release price for each lot was to be deducted from the maximum construction draw for that lot. It merely indicates that the lot release price had to be paid and the payment documented before the bank would release the lot from the security provided by its mortgage.
With respect to the $850,000 payable out of the A&D loan for site improvements, Einhorn has not pointed to any specific provision of the loan agreement that required a lump sum disbursement of that amount at the time of closing on the loan or at any other time. He claimed in his certification that the bank did not fund the amount required by the A&D loan. The bank, however, presented its record of "A&D Advance and Payment History," which shows total disbursements of $1,054,707.15 from that loan from February 6, 2007, through February 13, 2009, as well as $72,151.20 in "interest reserve advances." After accounting for the $599,975.00 in "principal payments" made on the loan by Einhorn Construction through August 5, 2010, a balance of $526,883.56 remained on the loan. These figures refuted Einhorn's claim that the bank did not disburse $850,000 out of a maximum loan amount of $1,200,000.
Considering the summary judgment record, the trial court stated:
There is no question that advances pursuant to the loans were to be made in accordance with approved plans. See the loan agreement, Sections 2.2, 6.1(f), and 7.9. In turn those plans prepared by Einhorn Construction unquestionably note the size of the houses as being 2,000 square feet in area. They also note that the total construction cost per home is approximately $160,000. There is no question that nowhere in the plans do they, the plans, state that the cost of construction for each house would be or reach $240,000 approximately. There is no question that the approximately $80,000 difference between the two figures results from non-construction costs, what are termed general subdivision costs in the plans. There is no question that a lump sum disbursement of $850,000 of the A&D loan proceeds upon closing appears nowhere in any document, but rather those proceeds are to be disbursed periodically on a percent-completion basis. See the loan agreement, Section 6.1.
There is no question that when the Bank reasonably determined that the houses being constructed deviated materially from the plans it was no longer obligated to make further disbursements. There is no question that the defendants never submitted revised plans for the Bank to approve altering the size of houses as per the earlier approved plans. There is no question that the, but that the defendant were obligated to do so. Simply put, defendants want the Court to rewrite the loan documents to say things that they plainly do not and confer on them a benefit for which they did not bargain. The Court cannot do this.
The court then summarized its conclusions as follows:
Plaintiff and defendant entered into a contract. The contract detailed certain rights and obligations of both parties. Defendant failed to uphold its obligations. Plaintiff exercised its rights under the contract. This in essence is what has happened here. Plaintiff has established its prima facie right to foreclose. Defendants have presented insubstantial opposition and have failed to establish the existence of a genuine dispute of a single material fact, as a result of all of which plaintiff is entitled to summary judgment as sought in its motion.
We find nothing in the record to refute these findings and conclusions. The trial court correctly granted summary judgment to plaintiff bank.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION