New Jersey Realty Concepts, LLC v. John Mavroudis

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2013-12T1

NEW JERSEY REALTY CONCEPTS,
LLC, THOMAS DINARDO, JOSEPH F.
BELASCO, JR., APPROVED FOR PUBLICATION

Plaintiffs, March 19, 2014

APPELLATE DIVISION
v.

JOHN MAVROUDIS, MICHAEL MAVROUDIS,
INDUSTRIAL CONDOMINIUM ASSOCIATES,
LLC, RIO VISTA PROPERTIES LLC, LAW
FIRM OF MAVROUDIS & RIZZO, RIO
VISTA CONSTRUCTION COMPANY LLC,
RIO VISTA MANAGEMENT LLC, RIO
VISTA NORTHVALE, LLC, RIO VISTA
PROPERTIES 690 LLC, RIO VISTA
MEDICAL LLC, RIO VISTA REALTY LLC,
RIO VISTA RENTALS LLC, RIO VISTA
SNOW LLC, JM MAVROUDIS MANAGEMENT
CO., ANNE MAVROUDIS, NEW JERSEY
HEALTH CARE CENTER LLC, 680 MEDICAL
GROUP LLC, ASC PARTICIPANTS LLC,
IMAGING CENTER OF ORADELL LLC,
PRESCRIPTION DISPENSARY OF ORADELL
LLC, LAB TECHNOLOGIES OF ORADELL
LLC, AND URGENT CARE CENTER OF
ORADELL LLC,

Defendants.

___________________________________________

Argued November 12, 2013 – Decided March 19, 2014

Before Judges Yannotti, Ashrafi and Leone.

On appeal from the Superior Court of New
Jersey, Chancery Division, Bergen County,
Docket No. C-230-11.
 Darryl T. Garvin argued the cause for
appellant William Earnshaw D/B/A Accent on
Design.

Stephen P. Sinisi argued the cause for
respondent Special Fiscal Agent (Law Offices
of Stephen P. Sinisi, Esq., LLC, attorneys;
Mr. Sinisi and Robert L. Falkenstern, on the
brief).

The opinion of the court was delivered by

LEONE, J.S.C., t/a

Appellant William Earnshaw appeals the orders of the

Chancery Division quashing and vacating his writ of execution

and notice of levy to execute a judgment issued by the Law

Division. We reverse and remand.

I.

Earnshaw does business as Accent on Design. Pursuant to a

contract with Rio Vista Properties, LLC (Rio), Earnshaw designed

and installed custom cabinets and countertops for most of the

offices in a medical office building (the Property) in Oradell.

Rio failed to pay invoices from Earnshaw. Believing Rio to be

the sole owner of the Property, Earnshaw filed suit against Rio

and John Mavroudis, a managing agent for the Property. In

November 2011, the Law Division granted Earnshaw partial summary

judgment for contract damages. On February 17, 2012, the Law

Division entered a final judgment against Rio in the amount of

$100,918.

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 In fact, the Property was owned 60% by Rio and 40% by New

Jersey Realty Concepts, LLC (NJRC), as tenants in common. Rio

and NJRC leased the building to medical tenants whose rents were

collected by Mavroudis.

Alleging misappropriation of funds, NJRC and others sued

Rio, John Mavroudis, his partner Michael Mavroudis, and others

in the Chancery Division. On January 9, 2012, the Chancery

Division judge removed John and Michael Mavroudis (Mavroudis

Defendants) as managing agents for the Property. The judge

appointed respondent Steven Sinisi as the Special Fiscal Agent

(SFA), giving him managerial authority over the Property.

Earnshaw, now aware of the Property's ownership and

management situation, forwarded the February 17, 2012 judgment

to the SFA. After the parties negotiated unsuccessfully,

Earnshaw recorded the judgment as a lien. The Law Division

issued a writ of execution for $100,918. To obtain the 60% of

the rents believed due to Rio, the Sheriff issued a notice of

levy and executed the writ on the tenants. The Sheriff

apparently collected the judgment amount, which is being held in

escrow.

On June 5, 2012, the SFA filed a motion in the Chancery

action. After hearing argument from the SFA and Earnshaw, the

Chancery judge issued an order on June 28, 2012, quashing and

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vacating the Law Division's writ and the Sheriff's notice of

levy, and requiring the Sheriff to transfer to the SFA the rents

collected from the Property. Earnshaw sought reconsideration,

which the judge denied on August 29, 2012. On November 30,

2012, the judge denied a stay, and certified as final the June

28 and August 29 orders. Earnshaw appealed those orders on

January 10, 2012.1

II.

Earnshaw argues that the Chancery judge improperly quashed

and vacated the Law Division's writ and levy. In a rider to the

August 29, 2012 order denying reconsideration, the judge gave

two reasons why the levy was improper. First, the judge ruled

that the rents collected by the SFA were in custodia legis.

Second, the judge ruled that it was improper for Earnshaw to

levy upon the 60% of the rents due to Rio.

We address each rationale in turn, hewing to our standard

of review. We recognize that the Chancery Division has

discretion in appointing a receiver or special fiscal agent.

See Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C. v.

1
It is unclear whether the orders were properly certified under
R. 4:42-2. Given the full briefing of the issues and the
passage of time, we grant leave to appeal those orders nunc pro
tunc under Rule 2:5-6 to avoid any uncertainty. See Taylor by
Wurgaft v. Gen. Elec. Co., 208 N.J. Super. 207, 211 (App. Div.),
certif. denied, 104 N.J. 379 (1986).

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Lowenstein Sandler, P.C., 365 N.J. Super. 241, 249 (App. Div.

2003); see also Roach v. Margulies, 42 N.J. Super. 243, 246

(App. Div. 1956). However, "[a] trial court's interpretation of

the law and the legal consequences that flow from established

facts are not entitled to any special deference." Manalapan

Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995). Because

this appeal poses issues of law, we review the matter de novo.

See, e.g., Cameron v. Ewing, 424 N.J. Super. 396, 401 (App. Div.

2012).2

III.

As the judge noted, "'[i]t is a general rule that money or

other property in the hands of an officer of a court is regarded

as being in custodia legis, and in consequence ordinarily cannot

be reached by execution in the absence of legislative

authority.'" Naglieri v. Trabattoni, 20 N.J. Super. 173, 176

(App. Div. 1952) (quoting Fredd v. Darnell, 107 N.J. Eq. 249,

253 (Ch. 1930)); see Culp v. Culp, 242 N.J. Super. 567, 572 (Ch.

Div. 1990). The question here is whether the rents due to Rio

were in custodia legis.

2
Because "'the substantive issues . . . and the basis for the
motion judge's ruling on the [motion to quash] and
reconsideration motion[] was the same,'" we consider the merits
of Earnshaw's appeal. See Potomac Aviation, LLC v. Port Auth.
of N.Y. & N.J., 413 N.J. Super. 212, 222 (App. Div. 2010)
(quoting Fusco v. Bd. of Educ. of Newark, 349 N.J. Super. 455,
461 (App. Div.), certif. denied, 174 N.J. 544 (2002)).

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 "Property is considered to be in custodia legis when it is

'in the custody of the law.'" Wilzig v. Sisselman, 209 N.J.

Super. 25, 31 (App. Div.), certif. denied, 104 N.J. 417 (1986).

Thus, under our law, when a complaint is
filed for the dissolution of an entity and a
receiver is appointed thereunder, "such
receiver becomes vested with title to the
property . . . from the date of the filing
of the bill." The property of the entity is
thereafter in custodia legis and the
receiver's possession is considered to be
that of the appointing court. Implicit in
any order establishing a custodia legis
status, through the appointment of a
receiver, is the fact that the property
becomes inalienable without the knowledge
and consent of the court.

[Ibid. (citations omitted).]

"Accordingly, the mere appointment of a receiver operates

to place property in custodia legis and automatically prohibits

its sale in the absence of approval of the court." Id. at 32.

Indeed, "[t]he word 'receiver' normally connotes a person or

entity who takes title to property in custodia legis." In re

Farnkopf, 363 N.J. Super. 382, 394 n.9 (App. Div. 2003); see

Wilzig, supra, 209 N.J. Super. at 32 (noting that "case law

links the custodial status of the property with the function of

the receiver").3

3
There are several types of receivers. For example, a statutory
receiver serves to "liquidate the corporation"; a custodial
receiver serves "to maintain the status quo for a definite
(continued)

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 "'It is well recognized that a court of equity has inherent

power in a proper case to appoint a receiver for a corporation

on the ground of gross or fraudulent mismanagement by corporate

officers or gross abuse of trust or general dereliction of

duty.'" Ravin, supra, 365 N.J. Super. at 249 (quoting Roach,

supra, 42 N.J. Super. at 245). However, the appointment of a

receiver is "'an extraordinary remedy,'" ibid., and can have the

effect of "injuring the business in its relations with the

public and its" customers, Roach, supra, 42 N.J. Super. at 246.

Accordingly, the Chancery Division may not appoint a

receiver without meeting certain procedural requirements. For

example, "an order appointing a statutory receiver for a

corporation shall give the stockholders and creditors leave

. . . to show cause why the receiver shall not be continued."

R. 4:53-1. The receiver must file an inventory and periodic

accounts, which must be audited and approved by the court. R.

4:53-7. A court may appoint a receiver "only for the short

period of time required to protect assets pending a final

(continued)
period of time, usually only during the pendency of the
litigation"; and a rent receiver serves "to protect the
mortgagee's interests by imposing a court-supervised,
disinterested person to collect the rents and pay expenses
pending the ultimate disposition of the mortgaged premises."
Kaufman v. 53 Duncan Investors, L.P., 368 N.J. Super. 501, 506
(App. Div. 2004).

7 A-2013-12T1
resolution of litigation or a dissolution of the business

enterprise." Kassover v. Kassover, 312 N.J. Super. 96, 100

(App. Div. 1998).

It is undisputed that the Chancery Division here did not

appoint a receiver, but instead took the less "drastic action"

and "less onerous expedient" of appointing a special fiscal

agent. See Roach, supra, 42 N.J. Super. at 245. "[T]he

appointment of a 'special fiscal agent' to oversee the

disbursements of a solvent corporation [is] a 'pendente lite

device . . . contrived to avoid more stringent measures'" such

as appointment of a receiver. Kassover, supra, 312 N.J. Super.

at 100 (quoting Roach, supra, 42 N.J. Super. at 246). Here, as

in Roach, "in an effort to refrain from hindering the corporate

business operations and at the same time to afford some

protection to plaintiff, the fiscal agent with circumscribed

powers was appointed." See Roach, supra, 42 N.J. Super. at 246.

The January 9, 2012 order transferred from the Mavroudis

Defendants to the SFA "managerial authority over the business

operations and financial affairs" of the Property, "including

(but not limited to) collection of rent, additional rent or

other revenues, payment of bills or other expenditures within

the ordinary course of business," hiring of employees, entering

into contracts, buying supplies, and making transactions. The

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order stated that the SFA would report to the court only "from

time to time, as he shall deem fit." No time limit was placed

on the SFA's appointment.

The order did not purport to place property in custodia

legis. Cf. Hyman v. Muller, 1 N.J. 124, 127 (1948) (noting that

the order appointing a receiver provided the assets he received

were thereafter to "'be considered as in custodia legis'"). Nor

did the order require the inventory and periodic accounts needed

for the court to monitor property in the court's custody. The

order did not require the court's approval for the sale of

property. Nor did it include the other procedural protections

attending a receivership, such as notice to creditors with an

opportunity to object. Thus, there is nothing in the order

endowing the SFA with the powers of a receiver, including a

receiver's quintessential protection of property in custodia

legis.

In the rider to the August 29, 2012 order, the judge stated

that because the judge appointed the SFA, the SFA acts as a

judicial officer and therefore holds the property in custodia

legis. The judge explained that "[e]quitable remedies are

distinguished for their flexibility, their unlimited variety,

[and] their adaptability to circumstances." Roach, supra, 42

N.J. Super. at 246 (citation and quotation marks omitted).

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However, the equitable remedy chosen by the judge – the

appointment of a special fiscal agent – is differentiated from a

receiver who holds the property in custodia legis precisely

because an SFA has "circumscribed powers," provides only "some

protection," and is a less "drastic action" than appointing a

receiver. See id. at 245-46. Notably, neither the parties nor

we have found any authority stating that a special fiscal agent

holds property in custodia legis. Thus, we find the rents due

to Rio were not held in custodia legis.

In any event, "'the test of immunity of property in

custodia legis may in general be said to be whether substantial

confusion or embarrassment to the initial jurisdiction would

result from the enforcement of process against the property by

another tribunal.'" Naglieri, supra, 20 N.J. Super. at 176

(quoting Fredd, supra, 107 N.J. Eq. at 253); accord Culp, supra,

242 N.J. Super. at 572-73. Here, the judge stated that the SFA

was appointed because there were allegations that the Mavroudis

Defendants were misappropriating funds. As in Roach, a SFA was

appointed to ensure some protection to the parties from further

misappropriation. Allowing the collection of debt through

execution of judgment does not thwart the goal of preventing

managerial misappropriation.

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 The judge also stated that "allowing Earnshaw the

opportunity to be prioritized as a creditor of Rio via the levy"

would "deprive the SFA of utilizing his Court-appointed power to

decide the order that the creditors should be paid in," and

would "deprive this Court of jurisdiction over the corporation

and lead to the Court's substantial embarrassment."

However, nothing in the judge's January 9, 2012 order gives

the SFA the power to decide that creditors shall be paid

contrary to the priorities established by law. The order simply

gives the SFA the authority for "payment of bills and other

expenditures within the ordinary course of business." We see

nothing indicating that paying Earnshaw's invoices, or obeying a

court-ordered writ of execution, falls outside the SFA's

authority or the ordinary course of business. Payment of those

bills has not been shown to deprive the court of jurisdiction or

cause substantial embarrassment. Thus, even if the rents were

in custodia legis, they could still be levied upon by Earnshaw.

IV.

The judge's rider to the August 29, 2012 order also stated

that the writ and levy were quashed because Earnshaw improperly

sought to levy upon the 60% of the rents due to Rio. This was

not a proper basis to quash or vacate the writ of lien, even

assuming that the SFA could bring such a challenge to the levy

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before the Chancery judge, rather than the Law Division which

issued the writ of execution.

The judge believed that Rio would not have possession of

the rents until after the SFA made the Property profitable, at

which point Rio would receive surplus funds that Earnshaw could

levy upon. Indeed, in a rider to the June 28, 2012 order

quashing the writ and levy, the judge instructed the SFA not to

distribute any funds to Rio, and to file a report with the court

detailing whether he had any "surplus funds." However, neither

the judge nor the SFA anticipated there would ever be surplus

funds.

In any event, when the writ was executed, nothing in the

judge's January 9, 2012 order prohibited the SFA from

distributing any funds to Rio. The order transferred from the

Mavroudis Defendants to the SFA the managerial authority to

collect rents and pay bills, but it did not bar the SFA from

paying to Rio or NJRC any monies due them as the owners of the

Property.

Moreover, the debts represented by the rental payments were

the property of Rio and NJRC, with 60% belonging to Rio and 40%

to NJRC. We note "the oft-stated general rule that a test of

liability to garnishment or execution 'is whether it is the

subject of assignment.'" Cameron, supra, 424 N.J. Super. at 406

12 A-2013-12T1
(citation omitted). Here, the right to receive rents was

capable of assignment by Rio, and thus was open to execution.

See Gonzalez v. Wilshire Credit Corp., 207 N.J. 557, 565 n.2

(2011) (noting that "'[t]he interest of a tenant in common may,

absent some contractual undertaking, be transferred without the

consent of the [other co-tenant].'" (citation omitted)); see

also Bauer v. Migliaccio, 235 N.J. Super. 127, 138 (Ch. Div.

1989).

The judge presumed that Earnshaw's writ of execution could

reach only "surplus funds," that is, the amount of the rents

remaining after payment of other creditors. However, "[a]

judgment creditor is entitled to obtain execution against a

debtor's 'debts' as well as earned income, trust fund income,

and profits." Cameron, supra, 424 N.J. Super. at 403 (quoting

N.J.S.A. 2A:17-50). The rents here are debts owed to Rio and

NJRC. "After a levy upon a debt due or accruing to the judgment

debtor from a third person, . . . the court may . . . direct the

debt, to an amount not exceeding the sum sufficient to satisfy

the execution, to be paid to the officer holding the

execution[.]" N.J.S.A. 2A:17-63.

The judge stated that Rio "does not have the necessary

possession of the funds in the form of the rents to allow levy,"

because "[t]here is great uncertainty that Rio will ever receive

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rental income from the property since a foreclosure action

against the property has been initiated." Although the bank

holding the mortgage on the Property had commenced foreclosure

proceedings, foreclosure had not yet occurred when Earnshaw

obtained the writ and levy. Moreover, the bank had deferred

enforcement of an assignment of rents provision of the mortgage,

and had made no application for a rent receiver. Therefore, the

rents were still Rio's property at the time Earnshaw's writ was

executed.

The judge cited Cameron for the proposition that "'[a] debt

which is uncertain and contingent, in the sense that it may

never become payable, is not subject to levy and sale.'"

Cameron, supra, 424 N.J. Super. at 406 (quoting Cohen v. Cohen,

126 N.J.L. 605, 610 (Sup. Ct. 1941)). "However, debts may be

subject to execution 'if liquidated and certain in their

existence[.]'" Ibid. (citation omitted). Here, like the

reverse mortgage payments in Cameron, the tenants' "payment

obligation is certain and currently payable." Ibid.; cf. Cohen,

supra, 126 N.J.L. at 610 (holding a widow's right to collect a

death benefit under her husband's life insurance policy if she

were alive on a date in the future was too uncertain to be

subject to levy).

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 Our ruling is "consistent with the general policy favoring

enforcement of judgments." See Cameron, supra, 424 N.J. Super.

at 406. "'It is the general policy of the law to lend the

creditor all reasonable assistance for the enforcement of his

claim, especially against a debtor who, though possessed of the

means to pay, seeks to evade his obligation.'" Ibid. (citation

omitted). Here, Earnshaw had obtained a judgment from the Law

Division. He had a right to enforcement of his claim against

Rio's rental income, despite the SFA's preference to pay other

creditors who had not yet attained the priority of a judgment.

See R. 1:13-8.

Accordingly, we reverse and remand with instructions to

release the escrowed funds to satisfy Earnshaw's judgment in

accordance with this opinion. We do not retain jurisdiction.

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