Carteret Savings Bank, F.A. v. Pelican Beach Properties, Ltd.
Docket: Civil No. 89-296
Court: District Court, Virgin Islands; August 13, 1992; Federal District Court
Carteret Savings Bank initiated a debt and foreclosure action against defendants for defaulting on a loan secured by real property. The bank seeks summary judgment regarding the defendants' indebtedness on a Promissory Note, asserting that res judicata and collateral estoppel prevent the defendants from contesting their debt. The undisputed facts include a loan of $2,154,620.59 issued on January 25, 1986, to William Graulich, Pelican Beach Properties, Ltd., and Parhil Company, with an initial maturity date of March 19, 1986, and an interest rate of 1% above Carteret's prime rate. This Note was replaced on March 27, 1986, extending the maturity to March 19, 1987. On December 22, 1987, an Amended and Restated Note was executed, extending the maturity to April 1, 1988, with interest set at 1.5% above the prime rate. The loan was secured by a Mortgage executed by Pelican Beach in New Jersey, along with several extensions, with the final extension also set to expire on April 1, 1988. The Borrowers defaulted on the loan upon its maturity. In November 1988, facing additional financial difficulties and pending foreclosure, defendants proposed a $2 million payment to Carteret to release a second mortgage lien and alleviate their defaults. An agreement was reached on November 17, 1988, under which the Graulichs guaranteed full repayment. However, following this agreement, defendants failed to make any further payments on the Virgin Island Note, breaching both the Note's terms and the Letter Agreement.
The Borrowers defaulted on the Virgin Island Note, leading Carteret to serve them with notices of default and demands to cure the defaults and honor their guarantees. As the Borrowers did not comply, Carteret declared the entire indebtedness immediately due and payable. On October 5, 1989, Carteret initiated foreclosure proceedings against the Virgin Island Mortgage executed by Pelican Beach and sought judgment against the Borrowers and the Graulich defendants for their defaults and guarantees. Prior to this, on August 15, 1989, Carteret filed the "Guaranty suit" against William Graulich, Joan Graulich, and the Company in New Jersey to recover on their guarantees related to the Virgin Island Note. The Morris County Superior Court ruled in favor of Carteret on September 14, 1990, dismissing the defendants' affirmative defenses and awarding $13,620,346.78 plus daily interest.
Carteret asserts that the New Jersey judgment provides for res judicata and collateral estoppel, preventing the defendants from relitigating the issue of their indebtedness, as it was distinctly put in issue and determined adversely in the Guaranty suit. The court agrees, noting that proof of indebtedness is requisite for both foreclosure and guaranty actions and that the defendants’ affirmative defenses and counterclaims are barred by res judicata since they mirror those dismissed in the prior action. Thus, the defendants cannot relitigate issues that were previously or could have been raised in the Guaranty suit.
Privity in legal terms allows a person closely associated with a party in a prior action to be barred from relitigating the same cause of action or issue. In this case, Pelican Beach is considered in privity with the Graulich defendants in the Guaranty action, binding it to the New Jersey Superior Court's final Order and Judgment. Although not a party in the original suit, Pelican Beach's interests were aligned with those of the Graulich defendants, as they shared legal representation and filed nearly identical defenses. This alignment of interests establishes that any outcome from the Guaranty suit directly affected Pelican Beach.
Defendants argue for the dismissal of the Complaint against Pelican Beach, claiming improper joinder under New Jersey's rules, which the court finds irrelevant since it is not bound by those rules. The court notes that the New Jersey Superior Court could not have exercised jurisdiction over Pelican Beach, a Virgin Islands corporation, due to lack of minimum contacts. Defendants also attempt to avoid the res judicata effect of the prior judgment by asserting an appeal; however, the court clarifies that a final judgment maintains its preclusive effect during an appeal. Additionally, the reliability of the original judgment does not impact its preclusive effect. Thus, the court concludes that Pelican Beach is bound by the prior judgment, and the defendants' arguments against its effect are without merit.
A final valid judgment is binding in all tribunals until overturned, regardless of its correctness. The case involves a dispute over the priority of liens held by Carteret and Dejongh Associates in a foreclosure action. Dejongh argues that Carteret did not perfect a valid mortgage lien, which should subordinate Carteret's lien to Dejongh's, recorded four years later. Carteret counters that it complied with New Jersey’s recording statutes, asserting that its mortgage maintains priority. Dejongh claims Carteret's mortgage lacks recordable form due to the absence of two witnesses, as required by Virgin Islands law (Title 28 V.I.C. 42(a)). Dejongh interprets Title 28 V.I.C. 42(b) to exclude mortgages from its provisions, suggesting that the omission of specific language limits its applicability to deeds only. The court disagrees, stating that the phrase modifies the entire section and applies to all interests in land, including mortgages. Since the mortgage was executed in New Jersey, subsection 42(b) is applicable, and New Jersey law governs. New Jersey law mandates one witness for a mortgage to be recordable, which Carteret met. Consequently, the court finds that the lack of two witnesses does not invalidate the mortgage for the Virgin Islands property. Additionally, Dejongh argues that Carteret's mortgage acknowledgment is deficient under New Jersey law for failing to include the mortgagor's principal place of business, confirmation of receipt of the mortgage copy, preparer certification, and that it was executed by an authorized party rather than the Corporate Secretary.
Dejongh's objections to the mortgage are unfounded. New Jersey Statute N.J.S.A. 46:15-4 mandates that only the mortgagee, not the mortgagor, must list its principal place of business; Carteret's Mortgage properly lists its address at 200 South Street, Morristown, New Jersey. Dejongh's second objection is also without merit as all defendants acknowledge receipt of the Mortgage and its extensions, and Dejongh has admitted that the submitted documents are true copies. Regarding the third objection, while the original Mortgage did not identify the preparer, the extensions did, which complies with N.J.S.A. 46:15-13 that only requires preparer identification. Dejongh's claim that the Corporate Secretary lacked authority to execute the Mortgage is dismissed, as it was confirmed that the Secretary was authorized by Pelican Beach. Even if there were minor technical defects in Carteret's recording, such issues do not affect the priority of the lien, as established in New Jersey v. Azco Realty Company, which emphasizes that substantial compliance suffices. The purpose of the recording act is to provide notice to subsequent parties and protect their interests, and here, substantial compliance has been achieved, ensuring Carteret's lien holds priority over subsequent lienholders.
As a result, the court issued an order on August 13, 1992, granting summary judgment in favor of Carteret against defendants William and Joan Graulich and Pelican Beach Properties, Ltd., allowing Carteret to proceed with foreclosure on the property. Dejongh's motions, including those for dismissal and summary judgment regarding lien priority and a debt for unexecuted architectural services, were denied.
Defendants in this case refer specifically to William and Joan Graulich, Pelican Beach Properties, Inc., and William Graulich and Associates, while Dejongh Associates is designated as "Dejongh." Parhil Company, Inc. has merged into William Graulich and Associates, Inc., identified as "the Company." The plaintiff has not sought summary judgment against the Company due to its protection under bankruptcy law. On December 9, 1983, Carteret provided two loans to the defendants totaling $10,500,000, secured by separate Mortgage Notes linked to two distinct properties. A loan from Crestmont Savings Bank was dependent on the release of Carteret's secondary lien on the Parsippany property. Carteret has substantiated the defendants' debt under the Virgin Island Note amounting to $893,121.46. References to the New Jersey Court Rules highlight the Entire Controversy Doctrine, which, according to the New Jersey Supreme Court, is not rigidly enforced. Carteret recorded its lien on the subject property on February 28, 1986, with extensions recorded on April 28, 1986, and February 19, 1988. Acknowledgment of the relevant instrument was executed in New Jersey before a notary public, compliant with Title 28 V.I.C. sec. 83, which permits acknowledgment within the United States before authorized officials.
