Opinion
DOCKET NO. A-3881-12T4
08-12-2015
FIRST SAVINGS BANK OF PERKASIE, Plaintiff-Respondent, v. ASIA INTERNATIONAL MALLS, INC., PHONG N. TRAN, and CHARLOTTE LUCY TRAN, Defendants-Appellants, and G BOYS EXCAVATING, INC., OAK SHADE NURSERY, INC., WEINSTEIN SUPPLY, FOLCHER ASSOCIATES, D&L CONSTRUCTION, INC., FRED R. MORGAN & SONS, INC., KMR ENTERPRISES, INC., TOWNSHIP MECHANICAL, LLC, and COMMERCIAL INSULATORS, INC., Defendants, and ASIA INTERNATIONAL MALLS, INC., Defendant/Third-Party Plaintiff-Appellant, v. DP CONSTRUCTION MANAGEMENT, LLC; MARK DEMATTEIS and KIRK PETRILL d/b/a PETRILL CONSTRUCTION, individually, jointly, severally and in the alternative, Third-Party Defendants.
Phong N. Tran argued the cause for appellants (Tran & Tran Law Firm, LLC, attorneys; Charlotte L. Tran, on the brief). Richard P. Coe, Jr. argued the cause for respondent First Savings Bank of Perkasie (Weir and Partners LLP, attorneys; Bonnie R. Golub and Jennifer Hiller Nimeroff, on the brief). Adam D. Greenberg argued the cause for respondent Commercial Insulators, Inc. (Honig & Greenberg, LLC, attorneys; Mr. Greenberg, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Lihotz, St. John, and Rothstadt. On appeal from Superior Court of New Jersey, Chancery Division, Camden County, Docket No. F-28263-10. Phong N. Tran argued the cause for appellants (Tran & Tran Law Firm, LLC, attorneys; Charlotte L. Tran, on the brief). Richard P. Coe, Jr. argued the cause for respondent First Savings Bank of Perkasie (Weir and Partners LLP, attorneys; Bonnie R. Golub and Jennifer Hiller Nimeroff, on the brief). Adam D. Greenberg argued the cause for respondent Commercial Insulators, Inc. (Honig & Greenberg, LLC, attorneys; Mr. Greenberg, on the brief). PER CURIAM
In this commercial foreclosure matter, we are asked to examine whether a Pennsylvania bank, which financed the purchase and development of New Jersey realty, violated provisions of the New Jersey Banking Act (the Banking Act), N.J.S.A. 17:9A-1 to -467, by "illegally transact[ing] business in this state." Defendant Asia International Malls, Inc. (AIM), a New Jersey corporation, appeals from a March 7, 2013 final judgment foreclosing its interest in commercial property subject to development (the property). Plaintiff First Savings Bank of Perkasie (FSBP), a Pennsylvania bank, financed AIM's purchase and development of the property. Two loans were secured by mortgages executed b AIM and personal guarantee-suretyship agreements (guarantee) executed by AIM's president, defendant Phong N. Tran, and his wife and AIM shareholder, defendant Charlotte L. Tran (guarantors). AIM defaulted and FSBP commenced foreclosure, ultimately securing the final judgment now under review.
AIM and guarantors assert the Chancery judge erred in denying their joint motion to dismiss FSBP's complaint, arguing FSBP was unlicensed to transact business in New Jersey, and conclude the judge erroneously interpreted and applied provision of the Banking Act. AIM and guarantors also maintain their counterclaims should not have been dismissed. Following our review, we reject these arguments and affirm.
I.
These facts are found in the motion record. AIM was incorporated in 2005. AIM's president is guarantor Phong N. Tran, an attorney licensed in New Jersey, Pennsylvania, Delaware, and the District of Columbia, and a certified public accountant licensed in both New Jersey and Pennsylvania. Guarantor Charlotte L. Tran, an attorney licensed in both New Jersey and Pennsylvania, is an AIM shareholder.
On February 3, 2006, AIM entered into an agreement with C&D Enterprises Unlimited (C&D), a Pennsylvania general partnership, to purchase the property located in Voorhees Township, consisting of a 68,932 square-foot building situated on 14.8 acres adjacent to Route 73. The purchase price was $8.8 million, and AIM intended to develop the property as "the Palazzo at Voorhees." Closing was scheduled at guarantors' Mount Laurel law office.
AIM's individual efforts to secure financing were unsuccessful. As a result, in 2007, it engaged a mortgage broker, Hansen Financial Capital Group, Inc. (Hansen), located in Philadelphia, Pennsylvania, to secure necessary funding to purchase and develop the property. Hansen's principal, Shanlin Cheng, telephoned Michael Kish, vice president of commercial lending at FSBP, to discuss AIM's interest in a $12.5 million loan to finance the proposed development. Kish suggested AIM formally submit a loan application.
FSBP is a capital stock savings bank, which along with its parent companies, was organized under Pennsylvania law with a registered office and operations center in Perkasie, Pennsylvania. FSBP had neither operations, offices, nor employees located or working in New Jersey.
On February 6, 2008, Kish submitted a commercial credit memorandum to his FSBP superiors for consideration and approval of AIM's $12,837,525 secured loan application. The credit memorandum was circulated among the FSBP's board of directors and approved later that month during a special telephonic board meeting.
All of the board members live and work in Pennsylvania.
FSBP retained Pennsylvania counsel Stephen Moyer to prepare the loan documents for AIM's loan. Moyer prepared and mailed a commitment letter to Kish on February 28, 2008, which Kish in turn, mailed to AIM, identifying the terms under which FSBP approved its loan.
FSBP ordered appraisals, property searches, and credit searches through providers retained by its Pennsylvania offices. AIM retained Pennsylvania counsel, who was also licensed in New Jersey, to provide the required opinion letter regarding AIM's corporate standing, registration, licensure, and legal authority to enter into the loan transaction.
AIM's closing with C&D was scheduled for March 31, 2008, at a New Jersey title insurance company. On behalf of FSBP, Moyer prepared the documents for AIM's loan, which he sent to Kish on March 26, 2008. Also, FSBP delivered to Kish the first check payable to AIM in the amount of $8.5 million, to pay the purchase price of the property.
Kish attended the March 31, 2008 closing in New Jersey, during which AIM executed a construction and permanent loan agreement; a promissory note in the amount of $12,837,525; an open-ended mortgage and security agreement; an assignment of rents, leases, and profits; a collateral assignment of agreements affecting real estate; and a security agreement for its personal property. Paragraph 28 of the construction and permanent loan agreement addressed "Governing Law," providing: "Except to the extent applicable law may require otherwise, this Agreement, the Note and the other documents delivered in connection herewith shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania." Also, AIM presented its corporate resolution, executed by guarantor Phong N. Tran, which provided AIM was "duly authorized to transact business in the Commonwealth of Pennsylvania." At the New Jersey closing, guarantors separately executed guarantees. FSBP disbursed $12,787,480.92 (the First Loan).
Following closing, Kish returned to FSBP's offices in Pennsylvania with the executed loan documents, where FSBP's personnel "booked," filed, and stored the documents. On April 18, 2008, two FSBP upper management representatives inspected the mortgaged property. They were met by AIM's president and Cheng, who was introduced as AIM's "business broker who had worked for [AIM] to find financing for the purchase of the Voorhees property."
Construction of the development was delayed. On June 26, 2009, AIM entered into a note modification agreement with FSBP, extending the period for interest-only payments, payable from a fund reserve created under the terms of the First Loan. All other terms and conditions of the transaction remained unaltered. The modification agreement stated it was governed by Pennsylvania law.
AIM also sought an additional $1,000,000 from FSBP (the Second Loan). Kish submitted a commercial credit memorandum to his superiors at FSBP detailing the Second Loan, for review by FSBP's board. The Second Loan was approved on April 10, 2009, at a board meeting conducted in Pennsylvania. Moyer prepared the necessary loan documents, which he emailed to Kish, who took them to New Jersey for execution. As with the First Loan, AIM provided its corporate resolution, stating it was authorized to transact business in Pennsylvania. The loan documents were "booked" and filed at FSBP's Pennsylvania offices. FSBP disbursed $749,402.13.
This additional financing was inadequate to fund the development. AIM sought additional borrowings from FSBP. However, FSBP noted AIM's failure to comply with the terms of the First and Second Loans. Other than interest payments released from the interest reserve created under the terms of the loans, AIM made no payments to FSBP. On December 22, 2009, FSBP notified AIM of its default, citing AIM's failure to make monthly interest payments as required, the interest reserves were depleted, cost overruns on the construction project resulted in cessation of construction activity, and the undisbursed loan funds were insufficient to complete construction of the development.
A second notice of default was issued on April 22, 2010, warning foreclosure would be filed if the defaults were not immediately cured. It was later learned that AIM had not paid subcontractors, resulting in the filing of construction liens encumbering the property, and had not remitted property taxes.
FSBP filed a foreclosure complaint on May 24, 2010. A separate Law Division action was filed against guarantors to enforce the personal guarantees.
AIM and guarantors moved to dismiss the foreclosure action, asserting FSBP was legally precluded from prosecuting the matter as it was not licensed to transact business in New Jersey, voiding the mortgages and guarantees. The Chancery judge considered the matter and, based on her factual finding that this was an interstate transaction, concluded FSBP had not transacted business in New Jersey in violation of the Banking Act. She denied the motion to dismiss in an oral opinion. A conforming order was entered on August 16, 2010. Interlocutory appeal was denied.
The matter proceeded. AIM filed a third-party complaint against the general contractor, a matter found not germane to the complaint and severed by the court. Its counterclaims against FSBP were dismissed for failure to state an actionable claim, except for a claim alleging violation of the Fair Credit Reporting Act, 15 U.S.C.A. § 1681-1681x, which sought monetary damages. That claim was transferred to the Law Division and consolidated with pending matter on the personal guarantees.
We have limited recitation of the procedures which occurred in this matter to events relevant to provide context to the issues on appeal.
Summary judgment was granted to FSBP on December 7, 2012 and final judgment of foreclosure was filed on March 7, 2013. AIM and guarantors appealed from the final judgment challenging the interlocutory orders. The remaining defendants named in the foreclosure action have chosen not to participate in the appeal.
Commercial Insulators, Inc. filed a brief and attended oral argument, but stated it "take[s] no position on the merits of the appeal."
II.
We first examine the asserted error in the judge's denial of AIM and guarantors' motion to dismiss grounded on enforcement of the Banking Act. AIM and guarantors argue FSBP was not a New Jersey licensed banking institution and, therefore, was prohibited from transacting business in this state. Because the transactions violated the law, they maintain the underlying loans, mortgages, and guarantees are unenforceable. AIM and guarantors request we reverse the August 16, 2010 order denying their motion to dismiss FSBP's complaint with prejudice.
The test for determining the adequacy of a pleading to state a claim upon which relief may be granted, R. 4:6-2(e), is whether a cause of action is "suggested" by the facts. Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989) (citing Velantzas v. Colgate-Palmolive Co., 109 N.J. 189, 192 (1988)). The inquiry is "limited to examining the legal sufficiency of the facts alleged on the face of the complaint." Ibid. (citing Rieder v. Dep't of Transp., 221 N.J. Super. 547, 552 (App. Div. 1987)). At such a preliminary stage in the litigation, the court "is not concerned with the ability of plaintiffs to prove the allegation contained in the complaint." Ibid. (citing Somers Constr. Co. v. Bd. of Educ., 198 F. Supp. 732, 734 (D.N.J. 1961)). Rather, the court must examine the complaint in depth and with liberality, to determine if a cause of action can be gleaned, particularly if further discovery is taken. Ibid. "[E]xamination of a complaint's allegations of fact . . . should be one that is at once painstaking and undertaken with a generous and hospitable approach." Ibid. In this regard, a plaintiff is entitled to every reasonable inference of fact. Ibid. (citing Indep. Dairy Workers Union v. Milk Drivers Local 680, 23 N.J. 85, 89 (1956)).
Our review of a trial judge's decision to grant or deny a motion to dismiss a complaint for failure to state a cause of action is governed by the same standard. Donato v. Moldow, 374 N.J. Super. 475, 483 (App. Div. 2005) (citing Seidenberg v. Summit Bank, 348 N.J. Super. 243, 250 (App. Div. 2002)). Therefore, we consider and accept, as true, the facts alleged in a plaintiff's complaint, to ascertain whether they set forth a claim against a defendant. Ibid.
Prior to discussing the merits of this claim, we must review relevant provisions of the Banking Act. "The Banking Act of 1948, including Article 44 entitled 'Foreign Banks,' represents a comprehensive scheme for regulating banking." Am. Bank & Trust Co. v. Lott, 99 N.J. 32, 35 (1985). The Act makes clear "no foreign bank organized under the laws of a foreign government shall transact any business in this State." N.J.S.A. 17:9A-316(a). This prohibition against transacting business is clarified by N.J.S.A. 17:9A-331, which addresses "[e]xempt transactions," stating in pertinent part:
N.J.S.A. 17:9A-316(d)(1) focuses on a foreign bank's back-office operations, providing:
For the purposes of this section, the term "transact business" shall not include back office operations and the term "back office operations" shall include the following activities: data processing, record-keeping, accounting, check and deposit sorting and posting, computation and posting of interest, other similar clerical and statistical functions, producing and mailing correspondence or documents and such other similar activities that the commissioner approves.
Nothing in this article shall prohibit a foreign bank fromAccordingly, the Banking Act does not preclude a non-New Jersey licensed bank from engaging in enforcement actions, including foreclosing on mortgages secured by New Jersey realty, pursuant to a transaction conducted outside of New Jersey. Lott, supra, 99 N.J. at 35-36. However, if a foreign bank engages in a prohibited transaction, it "shall not be entitled to maintain any action in any court of this State on any cause of action arising out of its transaction of business in this State in violation of the provisions of this article." N.J.S.A. 17:9A-330(a).
. . . .
(3) enforcing in this State obligations heretofore or hereafter acquired by it in the transaction of business outside of this State . . . ;
(4) acquiring, holding, leasing, mortgaging, contracting with respect to, or otherwise protecting or conveying property in this
State heretofore or hereafter assigned, transferred, mortgaged or conveyed to it as security for, or in whole or part satisfaction of a loan or loans made by it or obligations acquired by it in the transaction of business outside of this State . . . .
Focusing on the location of the closing and the situs of the realty, AIM and guarantors argue the facts show FSBP, a foreign bank under the Banking Act, conducted a New Jersey loan transaction, because: (1) all documents were executed in New Jersey; (2) loan funds were tendered to AIM in New Jersey; (3) AIM as borrower and guarantors were New Jersey residents; (4) FSBP inspected the property in New Jersey; (5) the property was appraised in New Jersey; (6) the First Loan was for the acquisition of New Jersey realty and the loans were to construct a development in New Jersey; (7) closing was in New Jersey; (8) Kish executed the HUD-1 closing statement in New Jersey; (9) negotiations occurred in New Jersey; and (10) the mortgages are recorded in New Jersey. AIM and guarantors minimize the loan-processing activities, which all occurred in Pennsylvania, labeling them "non-transaction[al]" or "internal activities," suggested to be unrelated to the New Jersey loan agreement.
This argument ignores the interstate aspect of the transaction as identified by the motion judge. FSBP, as a Pennsylvania bank, is not prohibited from lending money to a New Jersey corporation or from securing a debt by mortgages on New Jersey realty. Lott, supra, 99 N.J. at 36. Under these circumstances, the examination must determine whether the conduct in New Jersey was essential to the interstate transaction. The motion judge correctly determined the answer was no.
FSBP did not advertise, solicit, or employ brokers in New Jersey to generate business. It had no offices, telephone number, or employees in New Jersey. AIM engaged a Pennsylvania broker to obtain a funding source in Pennsylvania; the Pennsylvania broker introduced AIM to FSBP, which did not solicit the loan. The loan application was submitted to Kish in Pennsylvania; analyzed and considered by FSBP's board in Pennsylvania; and approved in Pennsylvania. The commitment letter was drafted in Pennsylvania and transmitted to AIM's Pennsylvania licensed attorney. AIM's Pennsylvania counsel issued an opinion letter and AIM provided a corporate resolution regarding its legal ability to engage in the Pennsylvania transaction; the property was appraised by a licensed Pennsylvania appraiser; and the loan documents stated they were governed by Pennsylvania law.
The location of the closing in New Jersey does not recast the transaction as one undertaken in New Jersey. A closing is found merely "to contribute to or to conclude a unitary interstate action." Allenberg Cotton Co. v. Pittman, 419 U.S. 20, 32-33, 95 S. Ct. 260, 267, 42 L. Ed. 2d 195, 205 (1974) (citation and internal quotation marks omitted). Honoring a borrower's request for the location of closing, which in this case was designed to accommodate AIM's contemporaneous closing to purchase the property from C&D, is not the type of contact with New Jersey that supports a conclusion FSBP was transacting business in New Jersey in derogation of the Banking Act. See ibid. The totality of the circumstances show the most pivotal portions of the loan process occurred exclusively in Pennsylvania.
Rejecting the suggestion that FSBP violated the Banking Act, we conclude no error resulted in denying the Rule 4:6-2(e) motion to dismiss FSBP's foreclosure complaint. FSBP has the right to enforce the contracts' terms, which include liquidation of the security issued to the loans. Lott, supra, 99 N.J. at 36; see also Int'l Textbook Co. v. Pigg, 217 U.S. 91, 108-09, 30 S. Ct. 481, 485-86, 54 L. Ed. 678, 686-87 (1910) (recognizing Article I, § 8 of the United States Constitution grants a foreign corporation the right to access state courts to enforce an interstate contract); Sioux Remedy Co. v. Cope, 235 U.S. 197, 203-04, 35 S. Ct. 57, 59-60, 59 L. Ed. 193, 197 (1914) (same).
AIM and guarantors' reliance on Arab African International Bank v. Epstein, 10 F.3d 168 (3d Cir. 1993), is misplaced. That case did not decide the issue underlying our decision in this matter, that is, whether a foreign bank had conducted business in New Jersey. In fact, a different court had already determined "[a]fter a two-day trial on the issue of where the transaction had occurred . . . [the plaintiff] was a foreign bank that had done business in New Jersey in violation of the [Banking] Act and therefore could not file its foreclosure actions in a New Jersey court." Id. at 170. Similarly, In re Topcroft, Inc., 136 B.R. 99 (D.N.J. 1991), also cited by AIM and guarantors, does not support their position as the lender in that matter was determined not to be a foreign bank, but rather a foreign corporation, governed by different registration requirements. Id. at 15-17.
We next examine whether the court's dismissal of several counts in the counterclaims was erroneous. We conclude it was not. Count four includes claims relating to the alleged illegal foreclosure, a position we have rejected as unsupported. Count six sought criminal prosecution for theft, which was dismissed; however, AIM and guarantors were not precluded from filing an amended complaint alleging a civil cause of action based upon the alleged criminal conduct. Count ten sought money damages for statutory violations of the Fair Credit Reporting Act, which were transferred to the Law Division as the remedy was unavailable before the Chancery Division. Count twelve alleged FSBP's violation of the Banking Act, which was properly dismissed. Count thirteen argued the civil actions were frivolous, but this claim also was dependent upon a finding of a violation of the Banking Act, making it properly the subject of dismissal.
AIM and guarantors' attempted incorporation of a trial brief in lieu of setting forth required legal arguments on appeal is rejected. R. 2:6-1(a)(2) (stating generally, "[b]riefs submitted to the trial court shall not be included in the appendix" submitted in the Appellate Division). Further, a motion to allow the use of the trial brief was expressly denied by our March 4, 2014 order. --------
Remaining issues asserted, not specifically addressed in our discussion, were found to lack sufficient merit to warrant discussion in our opinion, R. 2:11-3(e)(1)(E), or were advanced for the first time in the reply brief, which is prohibited, see Bernoskie v. Zarinsky, 344 N.J. Super. 160, 166 n.2 (App. Div. 2001) (holding arguments omitted from appellant's brief but raised for the first time in a reply brief are not properly before the court).
We conclude no error is presented warranting our interference with the dismissal of the counterclaims against FSBP. Printing Mart-Morristown, supra, 116 N.J. at 746; Donato, supra, 374 N.J. Super. at 482-83. Finally, summary judgment was properly granted to FSBP and no error requires we set aside the final judgment of foreclosure.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION
The application of this provision is not in issue.