MMU of New York, Inc. v. Grieser

Citations: 415 N.J. Super. 37; 999 A.2d 1204; 2010 N.J. Super. LEXIS 153

Court: New Jersey Superior Court Appellate Division; August 4, 2010; New Jersey; State Appellate Court

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The court, led by SKILLMAN, P.J.A.D., addressed the right of a judgment debtor to receive a fair market value credit for property purchased by a judgment creditor at a sheriff's sale for a nominal price. The court determined that it possesses inherent equitable authority to grant such a credit to avoid double recovery by the creditor, and this authority was appropriately applied in the current case.

Gary Grieser, the defendant, entered a ten-year commercial lease in 1990 but filed for bankruptcy in 1991 without disclosing the lease. After stopping rent payments while continuing to occupy the premises, he faced a lawsuit from 200 Ocean Boulevard Associates, leading to a default judgment of $1,630,481.69 against him. The judgment was later assigned to MMU of New York, which pursued collection efforts, including a sheriff's sale of a property Grieser acquired in 1996.

Despite multiple attempts to vacate the default judgment based on his bankruptcy discharge, Grieser was unsuccessful. MMU acquired the property for $100 at the sheriff's sale in 2001 and subsequently sold it for $1,200,500. Additionally, MMU collected over $188,944 from other properties owned by Grieser, totaling $1,389,444 in recovery.

In 2007, Grieser filed a motion contesting the default judgment's validity, which was denied due to his 'unclean hands' from not paying rent. However, the appellate court later reversed this denial, acknowledging Grieser's valid arguments that the landlord failed to mitigate damages and did not properly account for amounts collected. The case was remanded to the trial court for further consideration of these issues.

On remand, the trial court determined that the defendant was eligible for a reduction in the judgment amount due to 200 Ocean’s leasing and selling the premises after the defendant vacated. An order was issued on July 18, 2008, reducing the principal judgment to $384,759.60, minus rents received from a new tenant prior to December 10, 1993. The court awarded MMU $258,375 in interest, leading to an amended judgment totaling $643,134.60. Additionally, the defendant received a credit for the full amount MMU collected from executing on properties owned by the defendant, including $1,200,500 from the sale of the Monmouth Beach property, deemed to reflect fair market value. The total credits exceeded the amended judgment by $746,309.40, resulting in the court discharging the judgment in favor of MMU and entering a judgment of that amount in favor of the defendant. 

MMU’s motion for reconsideration was granted, but the original judgment in favor of the defendant was reaffirmed. MMU appealed the judgment and the reconsideration order. Notably, MMU did not contest the reduced judgment amount or the credits related to other properties but focused on the fair market value credit for the Monmouth Beach property. MMU raised three arguments against this credit: 1) the claim was barred by laches; 2) a judgment debtor cannot receive a fair market value credit after a nominal sheriff's sale; and 3) if the credit was valid, the trial court improperly issued an affirmative money judgment against MMU. 

Laches can prevent enforcement of a right due to inexcusable delay by the party claiming it, provided the other party was prejudiced and acted in good faith believing the right had been abandoned. MMU did not assert this defense until its reconsideration motion, which is inappropriate for new defenses. The record relevant to laches is incomplete since it was not previously raised. The defendant claimed that a 2007 accounting indicated entitlement to the credit, and MMU’s counsel seemed to acknowledge this at oral arguments. Consequently, the court concluded that MMU could not assert the laches defense at this late stage.

MMU contends that the defendant is ineligible for a credit based on the fair market value of the Monmouth Beach property, which MMU acquired at a sheriff's sale for a nominal sum. MMU argues that statutory provisions (N.J.S.A. 2A:17-1 to -83) do not permit such a credit for execution sales, contrasting this with mortgage foreclosure statutes that explicitly allow a fair market value credit in deficiency judgments. However, previous rulings have acknowledged a court's inherent equitable authority to grant a fair market value credit to prevent double recovery by a creditor, even without explicit statutory authorization. In the case of Morsemere Federal Savings and Loan Association v. Nicolaou, the court ruled that a non-mortgage judgment creditor could not intervene in a foreclosure action after final judgment but could still seek a share of surplus funds. It ultimately determined that the judgment debtor was entitled to a credit for the fair market value of property purchased at foreclosure, emphasizing that equitable considerations should allow the debtor to demonstrate fair market value and obtain a corresponding credit against the judgment amount. The court reinforced its authority to mitigate potential double recovery for creditors who profit from the property purchase while also seeking judgment satisfaction.

In Citibank, N.A. v. Errico, the court affirmed its inherent equitable authority to grant a fair market value credit to prevent double recovery by a judgment creditor, despite the lack of express statutory authorization. The case involved Citibank pursuing a deficiency judgment after a foreclosure sale where it acquired the property. The mortgagor claimed no deficiency existed due to the property's fair market value exceeding the judgment amount, raising a choice of law issue between New York and New Jersey statutes. The court ultimately favored New York law, which provided for a fair market value credit for commercial property. However, it also held that even under New Jersey law, equity would support such a credit to avoid unjust enrichment, despite the statute exempting commercial properties from fair market value provisions. The court emphasized its power to impose equitable relief where necessary. Following this, Smith v. Lopez reaffirmed the court’s authority to credit judgment debtors for fair market value or proceeds realized from property sales, emphasizing the obligation of judgment creditors to act fairly and prevent unjust enrichment, even when statutory provisions do not apply.

Judgment debtors are entitled to a fair market value credit post-execution sale, even in jurisdictions without specific statutory provisions. Courts have acknowledged this entitlement as a general policy to protect property owners, allowing for the deduction of a property’s fair market value from a judgment debt. In this case, MMU sold property for $1,200,500, its fair market value, after purchasing it for only $100 at the sheriff's sale. Retaining the full sale amount while only crediting the debtor with the nominal purchase price would result in an unconscionable windfall for MMU. The trial court correctly exercised its equitable authority to credit the debtor with the amount received by MMU from the property sale. MMU contended that the trial court erred by issuing a money judgment in favor of the debtor exceeding the amended judgment amount, citing a rule that a mortgagor cannot seek accounting for surplus when a mortgagee bids nominally without pursuing a deficiency. However, the difference in statutory frameworks for mortgage foreclosures and judgment executions grants the court equitable authority to prevent double recovery or windfall situations for creditors. This authority includes the ability to issue affirmative money judgments for debtors to avoid unjust gains for creditors, particularly when a creditor purchases property for a nominal amount despite its higher fair market value.

The trial court determined that the defendant was entitled to a significant reduction in the judgment awarded to MMU due to 200 Ocean's re-leasing and sale of the premises after the defendant vacated. Under N.J.S.A. 2A:17-44, a partial reversal of the judgment allows the defendant to receive compensation for the full value of the sold real estate that exceeds the reduced judgment amount. This interpretation aligns with the Restatement of Restitution, which states that if a judgment is modified and a lower amount is awarded, the debtor can reclaim any excess paid previously. Additionally, if the creditor has sold the debtor's property, the creditor must return any excess proceeds unless it would be unjust. The overarching aim of N.J.S.A. 2A:17-44 is to prevent unjust enrichment of the creditor at the debtor's expense. Consequently, the trial court's ruling in favor of the defendant was affirmed, supporting the legislative intent of restitution.