Opinion
DOCKET NO. A-5859-11T1 DOCKET NO. A-2284-12T3
05-14-2015
GE CAPITAL COMMERCIAL, INC., Plaintiff-Respondent, v. SILVER LABS, INC. and SILVER COURT NURSING CENTER, INC., Defendants, and MARC SILVER, Defendant-Appellant. GE CAPITAL COMMERCIAL, INC., Plaintiff-Respondent, v. SILVER LABS, INC. and SILVER COURT NURSING CENTER, INC., Defendants-Appellants, and MARC SILVER, Defendant-Respondent.
Marc Silver, appellant pro se in A-5859-11. Eryk A. Gazdzinski, attorney for appellants Silver Labs, Inc. and Silver Court Nursing Center, Inc. in A-2284-12. Mark W. Thompson argued the cause for respondent GE Capital Commercial, Inc. in A-5859-11 and A-2284-12 (Wong Fleming, P.C., attorneys; Jonathan R. Miller, on the briefs).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE COMMITTEE ON OPINIONS Argued (A-5859-11T1) and Submitted (A-2284-12T3) October 15, 2014 — Decided Before Judges Lihotz, Espinosa and Rothstadt. On appeal from Superior Court of New Jersey, Law Division, Camden County, Docket No. L-5105-10. Marc Silver, appellant pro se in A-5859-11. Eryk A. Gazdzinski, attorney for appellants Silver Labs, Inc. and Silver Court Nursing Center, Inc. in A-2284-12. Mark W. Thompson argued the cause for respondent GE Capital Commercial, Inc. in A-5859-11 and A-2284-12 (Wong Fleming, P.C., attorneys; Jonathan R. Miller, on the briefs). PER CURIAM
In these back to back appeals, defendants, Silver Labs, Inc. and Silver Court Nursing Center, Inc. (corporate defendants), appeal from the Law Division's March 2, 2012 order denying their motion to vacate the default judgment, its September 28, 2012 order amending the default judgment, and its December 12, 2012 order denying reconsideration of both the entry of the default judgment and the order amending the judgment. The corporate defendants' principal and guarantor, defendant, Marc Silver, appeals from the court's March 30, 2012 entry of summary judgment and its June 14, 2012 fee award against him.
We granted defendant Marc Silver's motion to join corporate defendants' appeal, A-2284-12, as a respondent pursuant to Rule 2:3-3. We denied, however, a motion to consolidate the appeals. The two appeals were calendared back to back and we have now consolidated them for purposes of this opinion only.
The judgments entered by the court were originally in the amount of $339,187.20 and arose from corporate defendants' Equipment lease with plaintiff GE Capital Commercial, Inc.'s predecessor in interest for use of certain laboratory Equipment (Equipment). Plaintiff later filed an amended complaint against all defendants by leave of court to reduce the amount of damages sought by over $100,000 due to plaintiff's miscalculation.
On December 22, 2011, plaintiff filed an amended complaint against all defendants by leave of court to correct plaintiff's name on the caption from GE Capital Corporation to GE Capital Commercial, Inc. On August 21, 2012, plaintiff filed a motion to reduce the amount of damages sought by over $110,000, "consistent with [plaintiff's] determination that its actual damages were substantially less tha[n] the amount originally awarded." All defendants opposed this motion. On September 28, 2012, after oral argument, the court granted plaintiff's motion to amend the default judgment against corporate defendants in accordance with the amended complaint.
On appeal, corporate defendants argue the court erred by not conducting a proof hearing where plaintiff could have been put to its proofs as to whether it mitigated its damages or that the parties' agreement was a lease as opposed to a security agreement. Also, according to corporate defendants, the court's failure to hold a hearing denied them due process.
Silver argues the motion judge improperly applied the Uniform Commercial Code in its determination of whether the agreement was a lease. Also, he argues the court incorrectly awarded damages by failing to determine whether plaintiff acted in a commercially reasonable manner. In addition, he claims the court failed to calculate a fair market value credit against the amount alleged to be owed, and failed to award present value damages as required by the contract. Silver further claims plaintiff impaired the collateral and failed to timely exercise its rights. Finally, he challenges the court's award of counsel fees.
Plaintiff responds by arguing corporate defendants cannot establish that the court abused its discretion in refusing to vacate the default judgment. In any event, because corporate defendants did not address the issue in their appeal, there is no basis to find excusable neglect in their failure to respond to the complaint. Therefore, there is no reason to disturb the court's denial of their motion. In addition, plaintiff argues corporate defendants' appeal is "time-barred" and plaintiff remains "contractually entitled" to an award of attorney's fees. Plaintiff also argues there is no dispute that the "[p]arties' lease agreement is an Article 2A lease and not an Article 9 security interest" and, in any event, plaintiff never impaired or disposed of the collateral. Further, it argues that laches has no application to this case and plaintiff is entitled to fees against Silver.
We have considered these arguments after a careful review of the record and the applicable legal principles. We dismiss corporate defendants' appeal as untimely and find all of Silver's arguments to be without merit. We therefore affirm the orders from which he appeals.
I.
We discern the facts from the summary judgment motion record. The material facts were not disputed.
In June 2006, corporate defendants entered into a lease with plaintiff's predecessor in interest for the Equipment which they used at their former place of business. The lease provided for a sixty-four month term with an end-of-term purchase option at fair market value. Pursuant to the lease, corporate defendants agreed to pay plaintiff $5,139.20 each month for sixty months (the first four months' payments were waived).
According to plaintiff, GE Capital is a "successor in interest to Choice Health Leasing, a former private label name for Citicorp Vendor Finance, Inc., by way of merger and renaming." The Equipment consisted of an Ortho Vitros 6.1 FS Chemistry System, an Ortho ECiQ System and a Vitros Suite 3 Year Warranty. It is described as a "sophisticated blood analyzer" and a "medical diagnostic machine."
The Lease's first paragraph stated, "[t]he parties intend this Lease to be a finance lease under Article 2A of the Uniform Commercial Code." Also, the Lease later provided,
N.J.S.A. 12A:2A-103(1)(g).
Lessor is the sole owner of the Equipment . . . . To protect Lessor's rights in the Equipment in the event this Lease is determined to be a security lease, Lessee hereby grants to Lessor a security interest in the Equipment . . . . The Equipment is, and shall at all times be and remain, personal property . . . .
[(Emphasis added).]
Corporate defendants agreed their obligations under the lease were "absolute":
3. TERM AND RENT . . . LESSEE'S OBLIGATION TO PAY RENTAL PAYMENTS AND ALL OTHER OBLIGATIONS HEREUNDER SHALL BE ABSOLUTE AND UNCONDITIONAL AND ARE NOT SUBJECT TO ANY ABATEMENT, SET-OFF, DEFENSE OR COUNTERCLAIM FOR ANY REASON WHATSOEVER. If any payment hereunder is not made by Lessee when due, Lessee shall be charged a late fee of ten percent (10%) of the amount of such payment, plus interest on such amount at the rate of 1.15% per month from the due date until the date paid . . . .
Corporate defendants would be in default if, among other reasons, they failed to pay plaintiff rent or any other payment when due. Upon default, plaintiff was entitled to exercise one or more of several enumerated remedies, including the right to terminate the lease, recover all rent and other amounts due, declare the unpaid balance of rental payments and other amounts immediately due and require corporate defendants to return the Equipment at their expense. Upon default, corporate defendants also agreed to be liable and pay all plaintiff's expenses incurred in connection with enforcement of its available remedies, including attorney's fees. The Lease further provided plaintiff's remedies were cumulative and in addition to any other remedies provided for by law.
Silver executed a personal guaranty, "unconditionally guarantee[ing] to Lessor the payment and performance obligations of Lessee under the Lease." Silver agreed plaintiff was not required to proceed against corporate defendants or the Equipment, or enforce other remedies before proceeding against him as guarantor. Silver also agreed to pay all pre- and post-judgment attorney's fees and costs incurred by plaintiff arising from default of corporate defendants or himself as guarantor.
On January 1, 2009, corporate defendants defaulted on their obligations by failing to pay plaintiff the regular monthly payment of $5,139.20, and did not make any payments thereafter. Silver also never made any payments to plaintiff pursuant to the guaranty. At the time of default, thirty-four monthly payments of $5,139.20 remained and corporate defendants had incurred a late fee of $1,282.23, making their total obligation $176,015.03. After incorporating the 1.15% monthly interest on the total obligation, as provided in the lease, corporate defendants' total obligation, as of February 1, 2012, was $250,909.43. According to plaintiff, contractual prejudgment interest continued to accrue at a rate of $2,024.17 per month.
In early 2009, corporate defendants through Silver sent the Equipment to R.L. Stephenson, Inc., an office equipment liquidator. The Equipment remained there in storage since the default. According to Silver, he attempted to sell the Equipment, the value of which plaintiff "impaired" by not taking possession after the default:
[W]hen we defaulted we notified [plaintiff] of the default. [Plaintiff] didn't respond. They were notified many times. So, we packaged [the Equipment] per manufacturer's specifications and we gave it to someone who was ready, willing and able to sell it. We found buyers and/or lessors for it, but . . . the company who was going to sell it said we can't sell it because you don't own it. We called [plaintiff], and [plaintiff] refused to respond.
. . . .
[H]ad [plaintiff] responded when we asked them to in the first 90, 120 days of the default, yeah, this is a different case. Waiting two years, and now three years to come back and say, hey, we're owed money, they've impaired the collateral, this has taken on an impairment of collateral Case . . . .
According to plaintiff, it "did everything [it] reasonably could to work with Mr. Silver," but it could not do more than file an action for replevin as prior encumbrances on the Equipment's title prevented it from attempting any sale. According to plaintiff's counsel, "Sun National Bank had a prior blanket lien [on] all of the Silver Company's assets . . . ." Despite an email from plaintiff's counsel requesting that Silver "secure Sun National Bank's cooperation in not asserting [its] lien interest against that Equipment so that . . . Silver could then surrender the Equipment . . . Silver did nothing in response to [the] e-mails . . . ."
Silver believed, however, that he and corporate defendants were not responsible for the Equipment after turning over possession to R.L. Stephenson. According to Silver, when and if plaintiff secured a purchaser for the Equipment, then he could approach Sun Bank about how much it would accept to release its lien.
Notwithstanding that belief, Silver claimed that he and corporate defendants attempted to sell the Equipment. Silver relied upon two May 28, 2009 notes from a moving company's internal system concerning a possible sale. However, nothing in those communications suggest R.L. Stephenson located a buyer or plaintiff somehow hampered the sale of the Equipment. The notes indicated the existence of plaintiff's lease prevented Silver from selling the Equipment. The first note stated:
Good Afternoon Marc;The second note, an internal memo, appeared to be an update from approximately one hour later:
Richard Shields of [R.L. Stephenson] advised us of several pieces of Equipment that still have leases on them. We were given a list of the Equipment by Lisa or Roseann dated December 7, 2008.
Unfortunately, Stephenson[] cannot begin any process with leased Equipment until the leases have been satisfied and documentation is supplied to us to pass along to Mr. Shields.
Please let me know how you want to proceed.
Just spoke with Marc Silver.Despite these alleged efforts, the Equipment remained stored at R.L. Stephenson's location and no payments were made by Silver to plaintiff.
His thoughts . . . Stephenson[] would sell the Equipment and a deal would be worked out with the buyer to take over the lease. I explained to him, Stephenson[], cannot even begin to process until he is advised the leases have been satisfied.
He will be calling each of these companies to find out how to work out the situation. He understands what we need.
Plaintiff filed suit against corporate defendants and Silver for breach of contract and replevin. Default judgment was entered in February 2011, after defendants failed to respond. In July 2011, the trial court vacated the judgment against Silver, individually. Corporate defendants moved to vacate the default judgment against them, pursuant to Rule 4:50-1, on February 3, 2012, a year after it was entered. Judge Richard F. Wells denied this motion by order dated March 2, 2012.
Also in February 2012, plaintiff moved for summary judgment against Silver for breach of his personal guaranty. In support of the motion, plaintiff argued there was no dispute as to corporate defendants' breach of the lease and Silver's liability as their guarantor, including payment of attorney's fees. In opposition, Silver argued plaintiff failed to mitigate its damages, it did not act in a commercially reasonable manner, it impaired the collateral, breached the covenant of good faith and fair dealing and pursued approximately $1300 to which it was not entitled.
Judge Wells, in granting summary judgment against Silver, found he failed to establish a genuine issue of material fact:
Silver companies are in default, and that Mr. Silver is a guarantor on those obligations. While Mr. Silver notes that he has raised several affirmative defenses,
defendant Mr. Silver has not established any of them. Mr. Silver does not provide any proof that he has made payments on the defaulted lease agreement, and in fact he admits that there is a default on these payments. [Corporate defendants] and defendant Mr. Marc Silver entered into this lease agreement, and the personal guarantee of these leases included the acceleration of all unpaid monthly payments, accrued late charges and interest. Mr. Silver . . . has not set forth any evidence to dispute that as of February 1, 2012 — [he] is liable to the plaintiff for $250,957.77.
I am not persuaded at all. I have read the cases with regard to these claims of the U.C.C. obligations, and basically impaired collateral. It is not persuasive. The personal guarantee controls. Summary judgment is granted. Attorney fees are provided for [in the lease].
[(Emphasis added).]
The judgment amount was reduced to $226,619.35 pursuant to the court's September 28, 2012 order.
The court entered its order, allowed for plaintiff's counsel's submission of a certification of services and any objection by Silver, and entered an order awarding attorney's fees in the amount of $52,201.22.
The court placed its comprehensive analysis of its award on the record on June 14, 2012.
Before the court's entry of an order awarding fees, Silver filed a motion for reconsideration. In his motion, Silver argued the court failed to determine whether the parties' agreement was a lease under Article 2A of the Uniform Commercial Code, or a security agreement under Article 9, which provided different remedies that plaintiff could pursue. Plaintiff opposed the motion and essentially argued Silver's argument was "simply [a] rehash[ing of] the same argument that the [c]ourt has already heard and rejected." The court considered the parties' arguments on the papers and denied Silver's motion on May 18, 2012. Silver filed his appeal. (A-5859-11T1).
Silver later filed another motion seeking to vacate the judgment, arguing substantially the same legal issues raised twice before Judge Wells. Ultimately, relying on Rule 2:9-1, a different judge dismissed the motion as the matter was on appeal.
Corporate defendants also filed a motion for reconsideration ostensibly of the September 28, 2012 order to permit the judgment's amendment. However, as the motion judge found, the motion actually challenged the December 2011 default judgment entered against them. As the judge explained:
While Silver's appeal was pending, we denied his motion to rely on transcripts from the Law Division's September 28, 2012 or December 12, 2012 motion hearings. They are cited here relative to corporate defendants' appeal.
The grounds that are raised here are really designed to vacate the original default and to challenge the denial of the motion to vacate that default back in March 2012, the
original default having been entered [o]n June 28, 2011, and on July 22[], 2011, another motion to vacate that default had previously been denied.The judge also rejected the motion as a valid motion to vacate the judgment under Rule 4:50-1 as it was filed "more than one year after the judgments [and] there is no assertion that those judgments . . . are void or have been satisfied under (d) or (e) of [Rule] 4:50-1."
All of the grounds that are being raised here were raised in the motion to vacate the default . . . that was denied in March 2012. The certification that was provided here is the same certification by Mr. Silver. The grounds of improper service were previously raised and the grounds of failure to . . . properly handle the physical Equipment in this case, to properly preserve the collateral, and to proceed with the handling of collateral in a commercially reasonable manner were all a rehash of the motion that was filed in February of 2012 to vacate.
. . . .
It cannot be a proper motion to reconsider the previous denial of the motion to vacate because that [order] was entered over nine months ago, and the default even earlier than that.
. . . .
Therefore, this motion . . . to reconsider is not timely because far more than 20 days has passed since the March 2012 order denying the previous motion to vacate . . . .
We turn our attention first to plaintiff's procedural argument that corporate defendants' appeal is untimely and thus should be dismissed. We agree.
Notably, corporate defendants do not respond to this argument in their reply brief.
A party generally has forty-five days from a final judgment to file an appeal. R. 2:4-1(a). This forty-five day period is tolled "by the timely filing and service of a motion to the trial court for rehearing or to amend or make additional findings of fact . . . or for rehearing or reconsideration seeking to alter or amend the judgment or order." R. 2:4-3(e). "The remaining time . . . begin[s] to run from the date of the entry of an order disposing of such a motion." Ibid.
Here, corporate defendants filed their notice of appeal on January 22, 2013. The trial court denied corporate defendants' motion to vacate the default judgment on March 2, 2012, granted plaintiff's motion for summary judgment against Silver on March 30, 2012, denied Silver's motion for reconsideration on May 18, 2012, and granted plaintiff's fee application on June 14, 2012, thereby resolving all claims as to all parties. Assuming the forty-five day period was triggered on June 14, 2012, corporate defendants had until July 29, 2012, to file their appeal. Under this calculation, their January 22, 2013 appeal was almost six months late.
The corporate defendants' filing of a motion for reconsideration of the court's September 28, 2012 order to permit the judgment to be amended did not provide them with a valid mechanism to pursue an appeal of the judgment against them. Corporate defendants moved for reconsideration on October 18, 2012. The motion judge correctly determined this motion was untimely, and thus it could not serve to toll the forty-five day period. However, even assuming this filing did toll the forty-five day period, corporate defendants' appeal is still untimely. When corporate defendants filed the motion on October 18, 2012, twenty of the forty-five days had run from the September 28, 2012 order amending the judgment. After their motion for consideration was denied on December 12, 2012, they had until January 6, 2013, to file the appeal; thus, their January 22, 2013 filing was late.
While it is true that we may extend the time to file by thirty days on a showing of good cause and the absence of prejudice, R. 2:4-4(a), no such motion was filed by corporate defendants. Therefore, we dismiss their appeal as untimely.
B.
Turning next to Silver's appeal, we begin by reciting the principles that guide our review of a trial court's determination on summary judgment. An appellate court applies the same standard as the trial court. Townsend v. Pierre, 221 N.J. 36, 59 (2015). Therefore, we apply the standard articulated in Brill v. Guardian Life Insurance Company of America, 142 N.J. 520 (1995):
[A] determination whether there exists a "genuine issue" of material fact that precludes summary judgment requires the motion judge to consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party.See also Badiali v. N.J. Mfrs. Ins. Co., 220 N.J. 544, 555 (2015); Town of Kearny v. Brandt, 214 N.J. 76, 91 (2013). Summary judgment is proper if the evidence shows "there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c); see also Davis v. Devereux Found., 209 N.J. 269, 286 (2012) (citing Brill, supra, 142 N.J. at 540. We first determine if there is a genuine issue of material fact. If there is no genuine issue of fact, "[w]e then decide whether the motion judge's application of the law was correct." N.J. Dep't of Envtl. Prot. v. Alloway Twp. & Salem, 438 N.J. Super. 501, 507 (App. Div. 2015) (citation and internal quotation marks omitted).
[Id. at 540.]
While the court must view the evidence in the light most favorable to the non-movant, "it is evidence that must be relied upon to establish a genuine issue of fact. Competent opposition requires competent evidential material beyond mere speculation and fanciful arguments." Cortez v. Gindhart, 435 N.J. Super. 589, 605 (App. Div. 2014) (citation and internal quotation marks omitted), certif. denied, 220 N.J. 269 (2015). "[B]are conclusions in the pleadings without factual support in tendered affidavits, will not defeat a meritorious application for summary judgment." Id. at 606 (citation and internal quotation marks omitted).
Silver argues that applying these standards, a "material dispute" existed as to whether the lease was a "true lease" under Article 2A of New Jersey's Uniform Commercial Code (U.C.C.), N.J.S.A. 12A:2A-101 to -532, or a security interest governed by Article 9, N.J.S.A. 12A:9-101 to -809 and, therefore, summary judgment should not have been granted. According to Silver, under Article 9, he would be entitled, as a guarantor, to certain additional defenses, including that plaintiff's disposition of the collateral must be commercially reasonable, as it is a secured party. He explains while the Lease expressly recites the parties' intent was to enter into an Article 2A lease and that plaintiff would remain "sole owner of the Equipment," the Lease also provides "[t]o protect Lessor's rights . . . in the event this Lease is determined to be a security interest Lessee hereby grants to Lessor a security interest in the Equipment." Silver contends this demonstrates plaintiff, which drafted the Lease, "was not certain if this was a lease or sale." He also submits an officer of plaintiff's company was available to explain the Lease was intended to be a sale, but this evidence was "never brought before the [c]ourt since there was no trial or call for proofs." We are not persuaded by these arguments.
The agreement explicitly states that it is a lease. ("The parties intend this Lease to be a finance lease under Article 2A of the [U.C.C.]."). As plaintiff explains, "the mere fact that the lease agreement included a fail-safe provision to protect [plaintiff's] rights to the Equipment does not in any way create a material dispute."
Silver did not produce any evidence to challenge that the agreement was a lease, and does not allege any procedural defects prevented him from introducing such evidence. If Silver truly located witnesses who certified plaintiff intended the lease to be a security agreement, he should have produced their deposition transcripts or affidavits in his opposition to summary judgment. Silver cannot rely on mere allegations to defeat summary judgment. R. 4:46-5(a) ("When a motion for summary judgment is made . . . an adverse party may not rest upon the mere allegations or denials of the pleading, but must respond by affidavits . . . setting forth specific facts showing that there is a genuine issue for trial.").
Further, an examination of the U.C.C. establishes the agreement was in fact a lease. Under the U.C.C., "[w]hether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case." N.J.S.A. 12A:1-203(a). N.J.S.A. 12A:1-203(b), which distinguishes leases from security interests, provides:
The U.C.C. defines a security interest as "an interest in personal property or fixtures which secures payment or performance of an obligation." N.J.S.A. 12A:1-201(b)(35). A lease is "a sale on approval or a sale or return, or retention or creation of a security interest is not a lease." N.J.S.A. 12A:2A-103(1)(j).
A transaction in the form of a lease creates a security interest if the consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease and is not subject to termination by the lessee, and:
(1) the original term of the lease is equal to or greater than the remaining economic life of the goods;
(2) the lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods;
(3) the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement; or
(4) the lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.
[N.J.S.A. 12A:1-203(b).]
Plaintiff cites an old version of the U.C.C. for the proposition that the determination of whether an lease is a lease or a security interest focuses on the parties' intent, arguing the parties' intent is explicitly evinced by the Lease. However, official comments to Section 12A:1-203, the new section distinguishing leases from security interests, note the deliberate removal of any mention of intent in the provision. See New Jersey Statutes Annotated, comment 2 on N.J.S.A. 12A:1-203. Instead, N.J.S.A. 12A:1-203 abandons the emphasis on intent and shifts focus to the parties' expectations. See John H. McNeill et al., New Jersey Transaction Guide § 82.28 (2015).
Additional consideration is nominal if "it is less than the lessee[']s reasonably predictable cost of performing under the lease agreement if the option is not exercised." N.J.S.A. 12A:1-203(d). By contrast, such consideration is not nominal if "the price is stated to be the fair market value of the goods determined at the time the option is to be performed." N.J.S.A. 12A:1-203(d)(2).
Here, the record evidence does not demonstrate the Lease was a security interest disguised as a lease under the test articulated in N.J.S.A. 12A:1-203(b). Silver could not establish the first requirement because there was no evidence the sixty-four-month lease term was equal to or greater than the remaining economic life of the Equipment. Silver argues a trial was needed to determine whether this condition was met because plaintiff failed to provide any facts as to the remaining economic life of the Equipment. However, given the Lease itself specified it was a lease, the burden was on Silver to produce evidence in his opposing papers to establish a dispute as to this issue. U.S. Pipe & Foundry Co. v. Am. Arbitration Assoc., 67 N.J. Super. at 384, 399, 400 (noting "bare [legal] conclusions" cannot defeat summary judgment and "[s]ummary judgment is not to be denied if the papers pertinent to the motion show palpably the absence of any issue of material fact").
Silver could not produce proof to satisfy the second condition because the Lease did not require corporate defendants renew the Lease or buy the Equipment. Instead, Paragraph 7A of the Lease gave corporate defendants the option to return the Equipment at the end of the term or purchase the Equipment at fair market value. Similarly, Silver could not satisfy the third requirement because the renewal option required payment of consideration. Paragraph 7 of the Lease specified plaintiff had the option to renew the lease for successive 30-day terms for $5,139.20 per term. Finally, he could not establish the fourth condition requiring the purchase option be for "no additional consideration or for nominal consideration." Here, the Lease required corporate defendants pay the fair market value of the Equipment, which the U.C.C. specifically recognizes is not nominal consideration. N.J.S.A. 12A:1-203(d) ("Additional consideration is not nominal if . . . the price is stated to be the fair market value.").
"If Lessee fails to notify Lessor [of its intent to exercise an end of term option] or having notified Lessor fails to return the Equipment as provided herein this Lease at Lessor's option shall renew for additional terms of thirty (30) days each at a periodic rent equal to the periodic rent stated herein."
Silver also argues the amount of damages awarded cannot stand because plaintiff's conduct impaired the collateral through "inaction," more specifically, by not repossessing the Equipment and selling or re-leasing it. Silver contends selling or re-leasing the Equipment would have prevented its depreciation in storage and offset the debt owed. Plaintiff argues "Silver effectively waived any defense sounding in impairment of collateral" by "expressly agree[ing] that [plaintiff] could proceed against him directly without first exercising its rights to the collateral or against the [corporate defendants], and unequivocally waiv[ing] any right of subrogation."
As already discussed, the Lease was not a security agreement. Even if it were, there was no evidence of impairment of the collateral, especially because Silver and corporate defendants removed the Equipment and placed it in storage for the purpose of selling it on their own, and, in any event, Silver waived his entitlement to any relief.
Upon default, a secured party is entitled to take possession of collateral, N.J.S.A. 12A:9-609(a), and dispose of it in a commercially reasonable manner. N.J.S.A. 12A:9-610(b). However, the U.C.C. provides additional remedies to a secured party specifying a secured party "may reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any available judicial procedure." N.J.S.A. 12A:9-601(a)(1). In fact, it contemplates some secured parties do not possess collateral, evinced by its enumeration of additional rights and duties of secured parties in possession and control of collateral above and beyond those of parties who are not in possession. N.J.S.A. 12A:9-601(b).
Other jurisdictions have explicitly recognized that "[w]hile Article 9 permits a secured party, upon default, to take possession of the secured collateral, it does not compel such a course of action." Conn. Nat'l Bank v. Douglas, 606 A. 2d 684, 687 (Conn. 1992); see also, ibid. ("Article 9 imposes no duties on a nonpossessory secured lender with regard to the disposition of the secured collateral"); Arlington Trust Co. v. Caimi, 610 N.E.2d 948, 952 (Mass. 1993) ("A necessary prerequisite to a commercially unreasonable disposition of collateral pursuant to . . . the Uniform Commercial Code is possession, for one cannot dispose of what one does not have.").
Here, it is undisputed plaintiff never took possession of the Equipment. Rather, the Equipment remains in a warehouse, effectively under Silver's control. Nothing in the U.C.C. suggests a party is required to take possession of collateral upon default. Further, the Lease here explicitly notes plaintiff may exercise one or more of several enumerated remedies upon default, only one of which involves repossession. Thus, the provision regarding commercially reasonable disposition of property does not apply because plaintiff did not repossess the property.
Further, N.J.S.A. 12A:3-605(e) addresses the impaired collateral defense, providing:
If the obligation of a party to pay an instrument is secured by an interest in collateral and a person entitled to enforce the instrument impairs the value of the interest in collateral, the obligation of an
indorser or accommodation party having a right of recourse against the obligor is discharged to the extent of the impairment."It is a well-recognized principle of the law of suretyship that a release of collateral held by a creditor, or its impairment by improper action or inaction on his part, will extinguish the obligation of the surety, at least to the extent of the value of the security released or impaired." Langeveld v. L.R.Z.H. Corp., 74 N.J. 45, 50-51 (1977). "The defense of impairment is derived from the right of subrogation, a right which is entitled to protection in all but the most exceptional of circumstances." Interchange State Bank v. Rinaldi, 303 N.J. Super. 239, 249 (App. Div. 1997).
Plaintiff argues the impairment of collateral defense is inapplicable because Silver, the guarantor, is the sole owner of the obligor, and thus the defense would merely allow him "to sue his own companies and to recover collateral that has been under his control all along." However, this doctrine is relevant because the defense, in theory, could reduce the obligation owed. Further, Silver and corporate defendants are treated as separate entities on this appeal.
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The U.C.C. allows a waiver of the impairment of collateral defense under N.J.S.A. 12A:3-605(i), and thus the defense only applies in cases where the creditor did not obtain a waiver. Interchange, supra, 303 N.J. Super. at 250. "Such a waiver, however, must be unequivocal before it will effectively preclude a guarantor from asserting the defense." Del. Truck Sales v. Wilson, 131 N.J. 20, 34 (1993).
In Interchange, we held guaranty language was an "unequivocal waiver" precluding the guarantor from asserting an impairment of collateral defense where the guaranty was unconditional; specified the creditor had the right to demand payment from the guarantor before first seeking payment from the obligor or trying to collect from any collateral; and noted the creditor had an "absolute right to disposition of collateral by release, exchange or sale." Interchange, supra, 303 N.J. Super. at 248-51; see also Del. Truck, supra, 131 N.J. at 32 (holding waiver was sufficiently unequivocal to preclude impairment of collateral defense where guaranty stated it was "'continuing, absolute and unconditional'" and may be enforced "'without first resorting to any security or other property or invoking other available rights or remedies'").
Here, Silver's guaranty waived the impairment of collateral defense. It explicitly states it is "unconditional" and notes plaintiff can proceed against Silver as guarantor without first proceeding against corporate defendants, the obligors, or the collateral:
[T]he undersigned guarantor . . . unconditionally guarantees to Lessor the payment and performance obligations of [corporate defendants] under the Lease and
any related Schedule. This Guaranty shall continue until all such obligations have been fully paid and performed. [PLAINTIFF] SHALL NOT BE REQUIRED TO PROCEED AGAINST LESSEE OR THE EQUIPMENT OR ENFORCE OTHER REMEDIES BEFORE PROCEEDING AGAINST GUARANTOR . . . . Guarantor waives any right of subrogation, indemnity reimbursement, and contribution by [corporate defendants].
Even if the guaranty did not waive the impairment of collateral defense, Silver fails to demonstrate actual impairment of the collateral. The U.C.C. offers guidance as to what may constitute impairment under N.J.S.A. 3-605(g):
[I]mpairing value of an interest in collateral includes failure to obtain or maintain perfection or recordation of the interest in collateral, release of collateral without substitution of collateral of equal value, failure to perform a duty to preserve the value of collateral owed, under chapter 9 or other law, to a debtor or surety or other person secondarily liable, or failure to comply with applicable law in disposing of collateral.
[N.J.S.A. 12A:3-605(g).]
Silver relies on Langeveld, and Block v. Dana, 252 N.J. Super. 650 (App. Div.), certif. denied, 127 N.J. 564 (1992), in arguing plaintiff impaired the value of the Equipment by not immediately repossessing, selling or re-leasing it. However, those cases involve actions taken by creditors that directly impaired the value of the collateral. Langeveld, supra, 74 N.J. at 50-52 (creditor impaired security interest by delaying in recording mortgage); Block, supra, 252 N.J. Super. at 659 (creditor impaired collateral in its possession by allowing liquor license to lapse). Silver cites no legal support for his "theory of impairment . . . that [plaintiff] has not taken possession of the collateral, thereby causing it to lose value." Plaintiff took no action leading to the Equipment's' impairment. It simply asked that corporate defendants remove the lien they caused to encumber the collateral's title so that it could be sold. Corporate defendants took no action, other than choosing to warehouse the Equipment with a liquidator, which they hoped would sell the Equipment for them. Under these circumstances, plaintiff could not be faulted for a commercially unreasonable disposition.
Silver further argues this action is barred by the doctrine of laches, alleging plaintiff inexcusably delayed in enforcing its rights. Specifically, Silver seems to complain plaintiff's delay in filing suit interfered with his attempted sale of the Equipment.
The doctrine of laches applies when "there is unexplainable and inexcusable delay in enforcing a known right whereby prejudice has resulted to the other party because of such delay." Cnty. of Morris v. Fauver, 153 N.J. 80, 105 (1998). (citation and internal quotation marks omitted). "The factors to be considered when determining whether to apply laches include: length of the delay; reasons for the delay; and changing conditions of either or both parties during the delay." Ibid. (citation and internal quotation marks omitted).
Here, laches does not apply. Plaintiff did not inexcusably delay in commencing suit because it filed the complaint less than two years after corporate defendants' default, which is well within the six year statute of limitations for a suit, N.J.S.A. 2A:14-1, although that fact alone does not bar the defense. It was Silver's burden to come forward with evidence to demonstrate there was "'unreasonable delay within the time limited by the statute.'" Fox v. Millman, 210 N.J. 401, 418-19 (quoting Patterson v. Hewitt, 195 U.S. 309, 318, 25 S. Ct. 35, 37, 49 L. Ed. 214, 218 (1904)) (noting application of the laches doctrine is fact sensitive and that statute of limitations does not preclude defense of laches).
Silver's argument that plaintiff thwarted efforts to sell the Equipment lacks evidentiary support and fails to show any delay prejudiced Silver's rights. Silver alleges he "had several potential buyers ready to mitigate his damages, but could not get [plaintiff's] permission to sell the Equipment." A review of the record provides no support for the claim Silver located a buyer. Further, Silver's rights were not prejudiced by plaintiff's failure to repossess the Equipment because, again, Silver expressly agreed in the guaranty plaintiff could enforce the guaranty without first proceeding against the collateral. Plaintiff was acting within its rights in the Lease. Therefore, the doctrine of laches does not apply.
Also, Silver argues the trial court violated his due process rights because the entire controversy doctrine precluded entry of default judgment against corporate defendants alone. He contends he and corporate defendants have been "heard separately with many inconsistencies," apparently believing the claims among the co-defendants must be litigated "in lockstep." Silver anticipates "the same identical issues before the Court will again have inconsistent decisions."
The entire controversy doctrine is not relevant here. The doctrine, codified in Rule 4:30A, requires litigants raise all transactionally related claims in the same action and imposes a preclusive effect on claims that are not so joined. See Kent Motor Cars, Inc. v. Reynolds & Reynolds, Co., 207 N.J. 428, 442-44 (2011). It does not bar a court from entering default judgment against only one of several defendants.
Finally, Silver argues the June 14, 2014 fee award should be vacated because summary judgment was improper and thus the fee award must be recalculated after the case is remanded, and because the case did not go to trial. However, as discussed above, summary judgment was proper, and thus the case need not be remanded. Further, in the lease, Silver explicitly agreed to pay plaintiff's legal fees and costs arising from any default regardless of whether the default resulted in a full trial: "[Silver] agrees to pay all pre-and post-judgment attorneys' fees and other costs incurred by [plaintiff] arising from default."
At the June 14, 2012 fee hearing, Judge Wells scrutinized the record and concluded fees and costs were recoverable against Silver because fees are provided for in the contract. Judge Wells was "satisfied that . . . Silver specifically agreed to pay plaintiff all pre- and post- judgment attorneys' fees and other costs incurred by a lessor arising from a default." He found the number of hours expended and the hourly rates to be reasonable, particularly because counsel removed more than half of its billings.
"Trial courts have considerable latitude in resolving fee applications, and a reviewing court will not set aside an award of attorneys' fees except 'on the rarest occasions, and then only because of a clear abuse of discretion.'" Grow Co., Inc. v. Chokshi, 424 N.J. Super. 357, 367 (App. Div. 2012) (quoting Rendine v. Pantzer, 141 N.J. 292, 317 (1995)). There is no evidence here demonstrating Judge Wells abused his discretion.
Affirmed.