NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-5055-15T1
RONALD B. BRUDER and
BROOKHILL CAPITAL RESOURCES,
INC.,
Plaintiffs-Appellants,
v.
DAVID H. HILLMAN, SMC-VIENNA
PARK G.P., INC., VIENNA PARK,
L.L.C., SOUTHERN MANAGEMENT
CORPORATION,
Defendants-Respondents,
and
THE GALLOWS CORPORATION,
Defendant.
___________________________________
Argued June 6, 2017 – Decided June 27, 2017
Before Judges Yannotti, Fasciale and Gilson.
On appeal from Superior Court of New Jersey,
Chancery Division, Passaic County, Docket No.
C-55-13.
Elisabeth S. Theodore (Arnold & Porter Kaye
Scholer, L.L.P.) of the Maryland and District
of Columbia bars, admitted pro hac vice,
argued the cause for appellants (Sandelands
Eyet, L.L.P., and Ms. Theodore, attorneys;
William C. Sandelands and Kathleen Cavanaugh,
of counsel and on the briefs; Ms. Theodore and
David Bergman (Arnold & Porter Kaye Scholer,
L.L.P.) of the District of Columbia bar,
admitted pro hac vice, on the briefs).
Alexander G. Benisatto argued the cause for
respondents (Shapiro, Croland, Reiser, Apfel
& Di Iorio, L.L.P., attorneys; Mr. Benisatto,
on the brief).
PER CURIAM
Ronald B. Bruder (Bruder) and Brookhill Capital Resources,
Inc. (Brookhill) (plaintiffs) appeal from a June 10, 2016 order
granting summary judgment to David H. Hillman (Hillman), SMC-
Vienna Park G.P., Inc. (SMC), Vienna Park, L.L.C. (VPLLC) and
Southern Management Corporation (Southern) (defendants). That
order dismissed the complaint with prejudice. Plaintiffs also
appeal from a June 10, 2016 order denying their motion for partial
summary judgment.
We affirm the order denying plaintiffs' motion for partial
summary judgment. We affirm the order granting summary judgment
to defendants as to Count One of the complaint. We reverse,
remand, and direct the judge to conduct further proceedings as to
Counts Two and Three of plaintiffs' complaint, requesting access
to books and records and an accounting.
In 1984, plaintiffs formed a New Jersey limited partnership,
Vienna Park, L.P. (VP). Plaintiffs, who are sophisticated real
2 A-5055-15T1
estate investors, served as general partners in VP. VP's express
purpose was to own and operate apartment buildings, specifically
a 300-unit complex in Virginia (the property). The property was
mismanaged and VP filed for bankruptcy.
In 1992, the bankruptcy case settled. As part of that
settlement, VP negotiated an agreement with Hillman to take control
of VP, invest capital into VP, restructure VP's secured debt, and
to provide capital for continued debt service. Pursuant to the
bankruptcy court's order, Hillman purchased secured notes and
deeds of trust on the Property through the bankruptcy case for
$11,850,000.
In 1993, VP emerged from bankruptcy under an amended
partnership agreement (the Agreement) with Hillman. The Agreement
converted plaintiffs' general partnership interests into limited
partnership interests, and substituted Hillman or "any corporation
or partnership owned or controlled by [Hillman]" as the general
partner. VP remained a New Jersey limited partnership, and Hillman
substituted SMC, a company he owned, as the general partner, and
designated Southern, another Hillman-owned entity, as the manager
of VP.
In 2007, Hillman, through Southern and SMC, directed that VP
be converted into VPLLC as part of an overall strategy to refinance
loans. Hillman undertook the conversion to satisfy certain
3 A-5055-15T1
requirements imposed by the lender, Freddie Mac, and to obtain
refinancing. Hillman executed a new operating agreement (the OA)
for VPLLC, transferring management to another of Hillman's
entities, The Gallows Corporation (Gallows).1 The OA stated that
the general and limited partners of VP "agreed to enter into this
[OA] to regulate the affairs of [VPLLC], the conduct of its
business, and the relations of its [m]embers."
Plaintiffs alleged that they did not learn of the conversion
until 2012, and promptly requested to review certain records and
books, which Hillman denied. In 2013, plaintiffs filed this
complaint to unwind the conversion and review the books and records
of VPLLC. The complaint contains three counts requesting:
declaratory judgment that defendant dissolved the partnership
unlawfully and in violation of the partnership agreement, the
dissolution of VP is void, and the partnership agreement remained
valid and effective (Count One); access to books and records (Count
Two); and seeking an accounting of all disbursements and
investments of VP and VPLLC (Count Three).
Plaintiffs maintained that the conversion was not only
illegal because they were uninformed, but that the OA significantly
1
We previously affirmed an order dismissing the complaint
against Gallows for lack of personal jurisdiction. Bruder v.
Hillman, No. A-3112-13 (App. Div. June 12, 2015).
4 A-5055-15T1
altered their rights including exculpating VPLLC's manager from
liability, creating new membership classes, and increasing fees
paid to the management company. They alleged that the conversion
amounted to an unlawful dissolution of VP.
The parties cross-moved for summary judgment. The judge
granted defendants' motion as to Count One of the complaint
concluding that Hillman properly converted VP to VPLLC, plaintiffs
received notice of the conversion, and the statute of limitations
and doctrine of laches barred the complaint. The judge did not
address Counts Two and Three of the complaint in which plaintiffs
requested various books, records, and an accounting of all
disbursements and investments of VP and VPLLC. The judge denied
plaintiffs' cross-motion for summary judgment finding that they
did not object to the conversion.
On appeal, plaintiffs argue that defendants dissolved the
partnership, rather than properly converting VP into VPLLC; laches
does not bar the complaint; and outstanding discovery precluded
the issuance of summary judgment to defendants.
When reviewing an order granting summary judgment, we apply
"the same standard governing the trial court." Oyola v. Liu, 431
N.J. Super. 493, 497 (App. Div.), certif. denied, 216 N.J. 86
(2013). We owe no deference to the motion judge's conclusions on
5 A-5055-15T1
issues of law. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan,
140 N.J. 366, 378 (1995).
We agree with the judge that the doctrine of laches bars
plaintiffs' complaint. "Laches is an equitable doctrine,
operating as an affirmative defense that precludes relief when
there is an 'unexplainable and inexcusable delay' in exercising a
right, which results in prejudice to another party." Fox v.
Millman, 210 N.J. 401, 417 (2012) (quoting County of Morris v.
Fauver, 153 N.J. 80, 105 (1998)). Laches is an equitable remedy
that our Supreme Court has found to be "an equitable defense that
may be interposed in the absence of the statute of limitations."
Id. at 418 (quoting Borough of Princeton v. Bd. of Chosen
Freeholders, 169 N.J. 135, 157 (2001)).
The Court has explained, laches is "invoked to deny a party
enforcement of a known right when the party engages in an
inexcusable and unexplained delay in exercising that right to the
prejudice of the other party." Ibid. (quoting Knorr v. Smeal, 178
N.J. 169, 180-81 (2003)). "Laches may only be enforced when the
delaying party had sufficient opportunity to assert the right in
the proper forum and the prejudiced party acted in good faith
believing that the right had been abandoned." Knorr, supra, 178
N.J. at 181. "Our courts have long recognized that laches is not
governed by fixed time limits, but instead relies on analysis of
6 A-5055-15T1
time constraints that 'are characteristically flexible[.]'" Fox,
supra, 210 N.J. at 418 (citation omitted) (quoting Lavin v. Bd.
of Educ., 90 N.J. 145, 151 (1982)). Whether laches applies
"depends upon the facts of the particular case and is a matter
within the sound discretion of the trial court." Mancini v.
Township of Teaneck, 179 N.J. 425, 436 (2004) (quoting Garrett v.
Gen. Motors Corp., 844 F.2d 559, 562 (8th Cir.), cert. denied, 488
U.S. 908, 109 S. Ct. 259, 102 L. Ed. 2d 248 (1988)).
In determining whether to apply laches, the court should
consider the length of the delay, the reasons for the delay, and
any changing circumstances of the parties during the delay. County
of Morris, supra, 153 N.J. at 105. As to the delay, the court
should look to an analogous statute of limitations, and laches
applies where "a claim derived from a statutory right had been
lost through failure to make a timely demand therefor." Fox,
supra, 210 N.J. at 420 (citing Lavin, supra, 90 N.J. at 152).
In concluding that the doctrine of laches barred plaintiffs'
complaint, the judge followed these well-settled principles. The
judge found the undisputed motion record demonstrated that
(1) [p]laintiff[s] ha[ve] not paid significant
attention to [VP or VPLLC] since 2003; (2)
[they] received K-1's since 2008[,] and
whether they were simply received and passed
along to [plaintiffs'] accountant or reviewed
by the [p]laintiffs and their accountants, the
[K-1's] were reflected on their signed tax
7 A-5055-15T1
returns; (3) [p]laintiff[s] received
distributions [from VPLLC]; and (4)
[p]laintiff[s] had full access to the
electronic portal for any and all information
so that they would become aware of any and all
activities of the entity. It was not
[d]efendant Hillman's responsibility or duty
to "spoon-feed" a sophisticated, passive
investor. Plaintiffs had significant
responsibility to oversee their own investment
and be aware of the actions that were being
taken.
It is undisputed that the K-1's as of 2008 had the name VPLLC on
them, and plaintiffs filed the K-1's with their tax returns. The
judge also noted that had plaintiffs accessed the portal, they
would have learned of the conversion and all relevant documentation
associated with the Freddie Mac refinance.
Moreover, plaintiffs could have learned of the conversion if
they had read any of the documents provided to them by defendants.
For example, on December 7, 2006, Southern mailed Hillman's
conversion notice to all the partners that owned multi-family
properties managed by Southern. The notice advised plaintiffs
that Southern intended to convert the partnerships into limited
liability companies, and stated:
Under the terms of the existing partnership
agreements, I am fully authorized on behalf
of the partnership and all individual partners
to undertake all action deemed necessary for
the benefit of the entities (and partners).
Provided there are no written objections to
the conversion of the existing partnership to
Limited Liability Company, I will undertake
8 A-5055-15T1
to accomplish the conversion prior to February
2007.
Southern attached a list of multiple properties if a partner was
invested in more than one property. Plaintiffs invested in only
one property, and therefore Southern did not attach that list to
their notice. The judge properly found that a presumption of
mailing and receipt existed, and plaintiffs were deemed to have
received this notice.
Now, over six years after the fact, plaintiffs have shown
considerable delay in filing their claim, and therefore the record
shows inexcusable and unexplainable delay. The record shows that
plaintiffs had sufficient knowledge of their rights, as
established by the presumption of mailing and other documents
plaintiffs received concerning the conversion. Therefore,
plaintiffs, who are sophisticated investors, had sufficient
opportunity to assert their rights.
Timeliness aside, plaintiffs' inexcusable delay in objecting
to the conversion has prejudiced defendants. Prejudice would
result from complications in refinancing and by witness memories
fading. Since the 2007 Freddie Mac refinancing, VPLLC has
refinanced twice, and the terms of its most current loan could
imperil the loan if we reverse. The loan terms state that VPLLC
"will not take any action . . . to change its legal structure[.]"
9 A-5055-15T1
The loan further notes that failure to comply with this requirement
will constitute an event of default for VPLLC. According to
defendants, a default on the loan "could have [a] catastrophic
impact across the entire loan portfolio[.]" The passage of six
years since the conversion presents significant practical problems
as "documents may no longer be available" and parties' memories
may have faded.
We therefore conclude that the judge did not err by relying
on the doctrine of laches to grant summary judgment to defendants
on Count One. Accordingly, we need not reach the question of
whether the statute of limitations barred the complaint or if the
purported dissolution of the partnership occurred or was unlawful.
We remand for the court to consider Counts Two and Three
because the judge did not address these arguments. The court's
ruling on laches pertained to the challenge to the conversion. On
remand, the trial court should address the claims in Counts Two
and Three.
We conclude that plaintiffs' remaining arguments are without
sufficient merit to warrant discussion in a written opinion. R.
2:11-3(e)(1)(E).
Affirmed in part, and reversed and remanded in part. We do
not retain jurisdiction.
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