Opinion
DOCKET NO. A-0490-14T1
06-09-2016
LYTKOWSKI & CO., INC., Plaintiff-Respondent, and LCA LP, LLC, and LIBERTY COMMUNITY ASSOCIATES, LP, Plaintiffs/Intervenors-Respondents, v. JOSEPH DECLEMENTE, Defendant-Appellant.
Thomas R. Ashley argued the cause for appellant. Scott J. Best (Weltman, Weinberg & Reis Co., LPA) argued the cause for respondent Lytkowski & Co., Inc. (Robert T. Lieber, Jr. (Weltman, Weinberg & Reis Co., LPA), attorney; Mr. Lieber, of counsel and on the brief). Brendan Judge argued the cause for respondents LCA LP, LLC and Liberty Community Associates, LP (Connell Foley, LLP, attorneys; Mr. Judge, of counsel; Mr. Judge and Jennifer C. Critchley, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Yannotti, St. John and Vernoia. On appeal from Superior Court of New Jersey, Law Division, Mercer County, Docket No. DJ-110813-11. Thomas R. Ashley argued the cause for appellant. Scott J. Best (Weltman, Weinberg & Reis Co., LPA) argued the cause for respondent Lytkowski & Co., Inc. (Robert T. Lieber, Jr. (Weltman, Weinberg & Reis Co., LPA), attorney; Mr. Lieber, of counsel and on the brief). Brendan Judge argued the cause for respondents LCA LP, LLC and Liberty Community Associates, LP (Connell Foley, LLP, attorneys; Mr. Judge, of counsel; Mr. Judge and Jennifer C. Critchley, on the brief). PER CURIAM
Defendant Joseph DeClemente appeals from an order entered by the Law Division on September 5, 2014, and argues that the trial court erred by permitting his creditors to foreclose upon his interest in Liberty Community Associates, LP (Liberty). We disagree and affirm.
I.
We briefly summarize the relevant facts. Liberty was organized in 1981 as a limited partnership, for the purpose of constructing affordable housing units and related facilities in the City of Plainfield. Liberty thereafter constructed ninety-six rental units and related facilities. Randall Reid had a 1.995% interest in the partnership. In 1982, defendant acquired a 19.601% interest in Liberty. David Heller had a 58.803% interest in the partnership, and Arthur Asch had a 19.601% interest.
Liberty operated the property as low income housing for about thirty years. Reid died in 2008. He had been Liberty's sole managing general partner. It appears that Reid had not filed federal or state partnership tax returns since 1994. By 2008, the partnership had accumulated $1,351,230 in income for distribution to its limited partners.
In 2009, Liberty distributed $580,000 to its partners, but defendant did not receive a distribution because he allegedly had not fully paid his agreed-upon cash contribution to the partnership. Liberty and defendant later resolved the dispute over the distribution, and defendant was paid $113,685.80. However, the partnership retained $18,331.50 of defendant's payment, and applied it as a credit to the amount defendant owed the partnership.
By 2009, Liberty's property had fallen into disrepair. The roofs of its buildings were leaking, and mold was growing in the apartment units. Appliances were not working, there were holes in the floors, and some toilets could not be used. Substantial improvements were required. In 2010, Stanley Perelman created LCA LP, LLC (LCA), which purchased Reid's partnership interest in Liberty.
At some point, defendant became indebted to Lytkowski & Co., Inc. (Lytkowski), an Ohio-based accounting firm, and Moriarty & Jaros (M&J), an Ohio law firm. Lytkowski and M&J had both obtained default judgments against defendant in Ohio. Lytkowski's judgment was for $17,950, and M&J's judgment was for $49,720. Lytkowski and M&J were unable to collect on these judgments in Ohio, and thereafter docketed the Ohio judgments in New Jersey.
Lytkowski and M&J later filed motions in the Law Division seeking orders charging defendant's interest in Liberty pursuant to N.J.S.A. 42:2A-48. M&J filed its motion in Union County; Lytkowski filed its motion in Mercer County. M&J and Lytkowski also sought to restrain the partnership and its partners from taking certain partnership-related actions until their respective judgments had been satisfied.
Defendant did not oppose either motion. The judge in Union County granted M&J's motion for the charging order, but denied without prejudice the other relief sought. The judge in Mercer County granted Lytkowski's motion in its entirety.
In April 2012, Lytkowski and M&J entered into an agreement with an entity called NEWCO, under which Lytkowski and M&J would sell NEWCO defendant's partnership interest in Liberty for $150,000 if Lytkowski and M&J secured that interest through foreclosure. Thereafter, Lytkowski and M&J filed a joint motion in the Law Division in Mercer County seeking to foreclose upon defendant's interest in Liberty.
Lytkowski and M&J claimed that defendant had not made any payments pursuant to their charging orders, and Liberty had refused to make any cash distributions to its partners. Lytkowski and M&J noted that they had agreed to sell defendant's partnership interest to NEWCO for $150,000 after they acquired that interest through foreclosure.
Defendant received the motion, and thereafter wrote a letter to the attorney for Lytkowski and M&J requesting that all future correspondence be sent to an address in Morristown. Defendant also requested "verification of debt," which Lytkowski and M&J later supplied. On June 15, 2012, defendant informed Lytkowski and M&J that he had retained counsel in the matter; however, defendant's counsel did not enter an appearance and defendant did not oppose the motion.
On June 15, 2012, the judge entered an order which foreclosed and extinguished defendant's interest in Liberty and granted title of same to Lytkowski and M&J. The judge also approved the sale of defendant's partnership interest to NEWCO. Lytkowski and M&J provided defendant with a copy of the order.
In August 2012, defendant's attorney informed counsel for Lytkowski and M&J that he was no longer representing defendant. At this point, NEWCO assigned its interest in the purchase agreement to LCA, and on August 15, 2012, LCA purchased defendant's partnership interest in Liberty from Lytkowski and M&J.
It appears that in September 2012, defendant filed a pro se motion to vacate the trial court's June 15, 2012 foreclosure order. In October 2012, the court denied the motion. Defendant claims he "re-filed" the motion in December 2012. It appears, however, that the motion was not properly filed.
In April 2014, defendant filed a motion in the Law Division in Mercer County to set aside the foreclosure order pursuant to Rule 4:50-1. Among other things, defendant asserted that Lytkowski and M&J had received an $80,000 partnership distribution, which satisfied the debts owed to them. Defendant also argued that the foreclosure order was void because a charging order was the only remedy available to Lytkowski and M&J.
In a decision placed on the record on May 23, 2014, the judge found that defendant was entitled to relief under Rule 4:50-1 because Lytkowski's and M&J's judgments had been paid, or the foreclosure order was void. The judge entered an order dated May 23, 2014, vacating the foreclosure order.
On June 19, 2014, LCA and Liberty filed a motion to intervene in the action, and sought relief from the court's May 23, 2014 order. In support of the motion, LCA and Liberty submitted a certification from Perelman, in which he asserted that defendant breached his obligation to make certain capital contributions to Liberty. Perelman stated that in April 2012 the value of Liberty's property was less than $1,000,000, and defendant's interest in Liberty had a value of about $150,000.
Perelman asserted that after LCA had purchased defendant's interest in Liberty, LCA increased its interest in the partnership to 21.596% and undertook major renovations of the property. According to Perelman, LCA was able to renovate the entire property at a cost of about $1,000,000. Perelman stated that he devoted about 300 hours to seeking a qualified buyer for the property and conducting negotiations for the sale. According to Perelman, in August 2013, Liberty agreed to sell the property to Liberty Village Estates, LLC, with the sale scheduled to close in June 2014.
Perelman also said that he spent a considerable period of time negotiating a new Housing Assistance Program (HAP) agreement with the United States Department of Housing and Urban Development, and a new agreement with Plainfield for low income housing tax credits. Perelman stated that throughout this process, he repeatedly called defendant but defendant did not return his calls.
Perelman asserted that defendant did not take an interest in the matter until 2014, when it became public knowledge that Liberty had a contract to sell the property, and had new HAP and tax credit agreements. Perelman said defendant "was lying in wait for me to improve the [p]roperty and orchestrate the very profitable sale." According to Perelman, defendant then "surfaced" and claimed he was the rightful owner of the 19.601% interest that LCA had purchased pursuant to the foreclosure order.
Perelman also asserted that defendant had never received a profit distribution from Liberty of more than $80,000. He stated that Lytkowski and M&J had only received $150,000 for the sale of defendant's interest in Liberty. He said that neither Lytkowski nor M&J had ever received a profit distribution from Liberty.
On July 18, 2014, the judge placed his decision on the record. The judge found that defendant had been on notice of the ongoing proceedings, which led to the foreclosure. The judge determined that the relevant statutes did not preclude foreclosure of defendant's partnership interest in Liberty.
The judge found, however, that even if the foreclosure order was not authorized by law, Liberty and LCA had reasonably relied upon it and had taken "great effort to improve the property." The judge concluded that, under the circumstances, the foreclosure order should be reinstated. The judge entered an order dated July 18, 2014, which granted LCA and Liberty's motion to intervene and vacated the May 23, 2014 order.
Defendant then filed a motion for reconsideration, which the judge considered on September 5, 2014. The judge again determined that the foreclosure order was authorized by law, and even if the order was void, LCA had reasonably relied upon the order when it purchased defendant's interest. Moreover, Liberty and LCA had invested substantial sums of money to renovate the property so that it could be sold.
The judge rejected defendant's contention that Perelman had "unclean hands" in arranging for the foreclosure of defendant's interest. The judge therefore found no basis to reconsider his prior order. The judge entered an order dated September 5, 2014, denying defendant's motion. This appeal followed.
On appeal, defendant argues that the trial court erred by finding that the June 15, 2012 foreclosure order was valid. Defendant further argues that the court erred by determining that even if the foreclosure order was void, it would not be set aside for equitable reasons. In addition, defendant contends that the law of the case doctrine precluded Lytkowski and M&J from seeking the foreclosure order.
II.
As noted, defendant argues that the trial court erred as a matter of law by finding that the June 15, 2012 foreclosure order was valid. Defendant contends that judgment creditors like Lytkowski and M&J are limited to obtaining an order charging the limited partner's interest in the partnership, and that judgment creditors cannot foreclose upon the partner's interest.
Liberty is a limited partnership formed pursuant to the Uniform Limited Partnership Law, N.J.S.A. 42:2A-1 to -73. N.J.S.A. 42:2A-48 provides in pertinent part that,
On application to a court of competent jurisdiction by any judgment creditor of a partner, the court may charge the partnership interest of the partner with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the partnership interest.
[N.J.S.A. 42:2A-48.]
The rights of an assignee of a limited partnership interest are defined in N.J.S.A. 42:2A-47, which allows the assignment of such an interest in whole or in part. The statute provides in pertinent part that "[a]n assignment of a partnership interest does not dissolve a limited partnership or entitle the assignee to become or to exercise any rights of a partner." Ibid. The statute further provides that "[a]n assignment entitles the assignee to receive, to the extent assigned, only the distribution to which the assignor would be entitled." Ibid.
According to defendant, a charging order entered pursuant to N.J.S.A. 42:2A-48 only gives the judgment creditor the rights of an assignee, which are limited by N.J.S.A. 42:2A-47 to receipt of any partnership distributions the partner may be entitled to receive. In support of his argument, defendant relies upon Firmani v. Firmani, 332 N.J. Super. 118 (App. Div. 2000).
In Firmani, we considered the application of the Uniform Fraudulent Transfer Act, N.J.S.A. 25:2-20 to -33, to a conveyance of property "for the alleged purpose of hindering enforcement" of the provisions of a divorce judgment pertaining to equitable distribution. Id. at 119. The judgment provided that the defendant would obtain sole ownership of certain property, and he would pay the plaintiff certain monies within a specified period of time. Id. at 119-20. Before the last installment was due to be paid, the defendant transferred title to the property to a limited partnership. Id. at 120.
The plaintiff obtained a judgment for the monies due, and also filed an action to set aside the transfer of the property on the ground that it was a fraudulent conveyance intended to avoid enforcement of the defendant's obligation under the divorce judgment. Ibid. We affirmed the trial court's order setting aside the conveyance. Id. at 125. We noted in passing that conveyance of the property to the partnership hindered the plaintiff's ability to collect the debt owed to her. Id. at 124.
We referred to N.J.S.A. 42:2A-48, and observed that, even if the plaintiff had obtained a charging order against the defendant's partnership interest, she would have had to wait "until a distribution was made before she could collect any money." Ibid. We also noted that since the defendant was the sole general partner, he had sole discretion as to whether any such distributions were made. Ibid.
As indicated, the discussion of N.J.S.A. 42:2A-48 in Firmani is not essential to the court's decision as to whether the transfer of the property was fraudulent. Moreover, Firmani does not specifically address the question raised by defendant, which is whether the Uniform Limited Partnership Law permits a judgment creditor to obtain an order foreclosing upon a limited partner's interest to satisfy a judgment.
We also note that our decision in FDIC v. Birchwood Builders, Inc., 240 N.J. Super. 260 (App. Div. 1990), does not address the issue presented here. In Birchwood Builders, we considered a provision of the Uniform Partnership Law, N.J.S.A. 42:1-1 to -43, which was repealed by L. 2000, c. 161. The statute at issue in Birchwood Builders provided in part that a judgment creditor of a partner could obtain a court order charging the partner's interest with payment of the unsatisfied amount of the judgment. N.J.S.A. 42:1-28(1) (repealed by L. 2000, c. 161). The statute further provided that the interest charged could be "redeemed at any time before foreclosure, or in the case of a sale being directed by the court, may be purchased" without causing dissolution of the partnership. N.J.S.A. 42:1-28(2) (repealed by L. 2000, c. 161).
We held that the judgment creditor could "force the sale of the partner's interest in the partnership." Birchwood Builders, supra, 240 N.J. Super. at 267. We stated that, even so, the trial court should not order a sale unless it "is convinced the creditor's claim will not be satisfied in a reasonably expedient manner by diverting the debtor's income from the partnership to satisfy the debt." Id. at 267-68.
We note that Birchwood Builders has little relevance to this case because it interpreted a provision of the repealed Uniform Partnership Law, not the Uniform Limited Partnership Law, which applies to Liberty. We also note that the Uniform Partnership Act, which was enacted in 2000, provides in pertinent part that
On application by a judgment creditor of a partner or of a partner's transferee, a
court having jurisdiction may charge the transferable interest of the judgment debtor to satisfy the judgment. The court order charging the transferable interest of a partner or of a partner's transferee shall be the sole remedy of a judgment creditor, who shall have no right under this act or any other State law to interfere with the management or to force dissolution of the partnership or to seek an order of the court requiring a foreclosure sale of the transferable interest. The court may appoint a receiver of the share of the distributions due or to become due to the judgment debtor in respect of the partnership and make all other orders, directions, accounts, and inquiries the judgment debtor might have made or which the circumstances of the case may require.However, the Uniform Limited Partnership Law applies to Liberty, and it does not expressly preclude the court from ordering a foreclosure sale of the transferable interest.
[N.J.S.A. 42:1A-30(a) (emphasis added).]
In any event, we are convinced that we need not resolve the question of whether the Uniform Limited Partnership Law permits a court to enter an order foreclosing upon a limited partner's interest when a judgment creditor has obtained a charging order, and the creditor has established that its judgment will not be satisfied within a reasonable time from partnership distributions. As explained herein, the court's order denying defendant's motion to set aside the foreclosure order should be affirmed on other grounds.
III.
Here, the trial court found that even if the June 15, 2012 foreclosure order was not valid, the order should not be set aside for equitable reasons. As we have explained, the court determined that LCA had reasonably relied upon the order when it purchased defendant's limited partnership interest in Liberty, after which LCA and Liberty devoted considerable time and expense to rehabilitating Liberty's property.
Defendant argues that the trial court erred by finding that he was estopped from seeking to set aside the foreclosure judgment. Defendant asserts that Perelman could not have detrimentally relied upon the order which Lytkowski and M&J "instigated" and Perelman "indirectly facilitated." He contends Perelman knew or should have known that foreclosure was not an available remedy, and that the June 15, 2012 foreclosure order was void. In our view, these arguments are without merit.
"Estoppel is an equitable doctrine, founded in the fundamental duty of fair dealing imposed by the law." Hous. Auth. of Atl. City v. State, 188 N.J. Super. 145, 149 (Ch. Div. 1983), aff'd 193 N.J. Super. 176 (App. Div. 1984). Rooted in "fundamental principles of justice and fair dealing," estoppel prevents injustice "by not permitting a party to repudiate a course of action on which another party has relied to his detriment." Knorr v. Smeal, 178 N.J. 169, 178-800 (2003) (citations omitted). To invoke estoppel, a plaintiff must show that the defendant engaged in conduct that induced reliance, and as a result "plaintiffs acted or changed their position to their detriment." Id. at 178 (citation omitted).
Here, the record supports the trial court's determination that defendant was estopped from seeking to set aside the foreclosure order. The record shows that defendant knew of the pending foreclosure application did not oppose it, and was provided with a copy of the June 15, 2012 foreclosure order shortly after it was entered. Defendant filed a pro se motion to vacate the order. As stated previously, the first motion was denied, and it appears that the second motion was not properly filed. LCA and Liberty properly characterize defendant's efforts in this regard as "half-hearted at best."
In any event, defendant did not successfully challenge the foreclosure order until April 2014, which was after Lytkowski and M&J sold defendant's interest to LCA with the court's approval. While the time passed, LCA and Liberty made substantial efforts and incurred significant expense to renovate Liberty's property so that it could be sold, as detailed in Perelman's certification.
Defendant's unreasonable delay in seeking relief induced LCA and Liberty to rely upon the court's foreclosure order. Knorr, supra, 178 N.J. at 178. Defendant waited an unreasonably long period of time while LCA and Liberty devoted substantial resources and efforts to improve the property. Defendant has not provided a credible explanation for his delay in seeking relief from the order, and the trial court correctly determined that it would be inequitable to grant defendant relief from the order after sleeping on his rights for an unduly long period of time. Lavin, supra, 90 N.J. at 152-53.
We are also convinced that because defendant delayed in filing his motion to set aside the judgment, he was not entitled to relief under Rule 4:50-1. Defendant sought relief from the foreclosure judgment on the ground that it was void. In addition to equity, this undue delay also bars defendant from relief under R. 4:50-2, because the delay was unreasonable.
Defendant argues, however, that LCA and Liberty could not assert the equitable doctrine of estoppel because they allegedly had unclean hands in the matter. Defendant asserts that LCA, Liberty, Lytkowski, and M&J had no legal basis for foreclosure. He also asserts that Lytkowski and M&J improperly relied upon our decision in Birchwood Builders as support for the foreclosure order.
We reject defendant's contention that LCA, Liberty, Lytkowski, and M&J knew or should have known that there was no legal basis for the foreclosure order. As we have explained, the Uniform Limited Partnership Law does not expressly preclude a court from ordering a foreclosure sale of a limited partnership interest. However, the trial court determined that foreclosure was permitted. Moreover, defendant's reliance upon provisions of the Uniform Partnership Act is misplaced because, although it precludes a judgment creditor from foreclosing upon a partner's interest, that act does not apply to Liberty.
Defendant also asserts the October 7, 2011 decision of the Law Division judge in Union County made clear that there was no authority for a foreclosure order. As noted, M&J sought a charging order as well as other relief, which would have imposed certain restrictions upon Liberty until its judgment was paid. Among other things, M&J sought to preclude the partnership from making loans to partners or any capital acquisitions without the court's approval.
The judge refused to order the restraints, noting that he could not "discern any basis" to do anything other "than to order that the partnership make any distributions that would otherwise be due to [defendant]." However, the question of foreclosure was not before the judge in Union County and he did not address it.
Defendant further argues that Lytkowski and M&J improperly relied upon our decision in Birchwood Builders as support for the foreclosure order. Lytkowski and M&J may have been mistaken in relying upon that decision, but there is no evidence that they acted in bad faith when doing so.
In addition, defendant argues that Perelman acted in bad faith by facilitating the foreclosure and refusing to allow Liberty to pay distributions prior to the foreclosure. There is, however, no evidence in the record to support these assertions. The contention lacks sufficient merit to warrant further comment. R. 2:11-3(e)(1)(E).
Defendant also argues for the first time on appeal that, under the law of the case doctrine, Lytkowski and M&J were estopped from filing for and obtaining the June 15, 2012 foreclosure order, because the judge in Union County allegedly found that there was no legal basis for such relief.
Under the law of the case doctrine, legal decisions made in a matter "should be respected by all other lower or equal courts during the pendency of that case." Lombardi v. Masso, 207 N.J. 517, 538 (2011) (quoting Lanzet v. Greenberg, 126 N.J. 168, 192 (1991) (citations omitted)). The touchstone of this doctrine is its discretionary nature, which calls for a balancing of judicial deference and the pursuit of truth and justice. Id. at 538-39 (citations omitted).
The law of the case doctrine does not apply here. The judge in Union County did not expressly find that the applicable statutes prohibited M&J from foreclosing upon defendant's partnership interest. Moreover, even if he had been made aware of the decision of the Union County judge, the judge in Mercer County who entered the foreclosure order was not bound by that decision.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION