WILMINGTON SAVINGS FUND SOCIETY FSB v. OTIENO-NGOJE
OPINION. Signed by Judge William J. Martini on 1/23/17. (gh, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
WILMINGTON SAVINGS FUND SOCIETY,
FSB as Trustee of Stanwich Mortgage Loan
Civ. No. 2:16-5631
WILLIAM J. MARTINI, U.S.D.J.:
Plaintiff Wilmington Savings Fund Society (“Plaintiff”) brings this action against
Defendant Beryl Otieno-Ngoje (“Defendant”), alleging counts of conversion, unjust
enrichment and fraud, in connection with Defendant’s purported illegal appropriation of
insurance proceeds. This matter comes before the Court on Plaintiff’s motion for default
judgment and Defendant’s cross-motion to vacate default. Plaintiff also moves for release
of funds deposited by the Essex County Sheriff in a trust account. There was no oral
argument. Fed. R. Civ. P. 78(b). For the reasons set forth below, Plaintiff’s motions are
DENIED and Defendant’s cross-motion is GRANTED.
This case is a dispute over the proper owner of insurance proceeds issued in
connection with a residential property damaged by fire. In 2009, Defendant bought the
property via quit claim deed from the previous owner for $1.00 of consideration. See
Cross-Mot. to Set Aside Default 1 (“Def.’s Opp’n”), ECF No. 13-3; Certification of
Michael Orozco ¶ 4 (“Orozco Cert.”), Ex. B, ECF No. 13-2. At the time of Defendant’s
purchase, the property was subject to a mortgage under the previous owner’s name,
Auslene Simon. See id. at ¶ 2, Ex. A. At some point, Simon apparently defaulted on her
mortgage obligation. In 2012, U.S. Bank National Association, the owner of the mortgage
at that time, brought a foreclosure action in New Jersey Superior Court. See id. at ¶ 3.
In November 2015, the property was damaged by fire and has henceforth been
uninhabitable. See id. at ¶ 5. In early 2016, Defendant made an insurance claim for the
fire damage to Liberty Mutual Insurance Company (“Liberty Mutual”). See Mem. of Law
in Supp. of Mot. for Entry of Default J. 2 (“Pl.’s Mot.”), ECF No. 8-2. Liberty Mutual
approved the claim and issued two checks in May and July of 2016 for the amount of
$292,638.46 and $47,906.16, respectively. Id. at 2–3. The checks were jointly payable to
three payees: (1) Defendant; (2) Carrington Mortgage Services, Plaintiff’s mortgage
servicer (“Servicer”); and (3) D. Simon & Associates LLC, Defendant’s adjuster
(“Adjuster”). Id. The Adjuster endorsed both checks on its own behalf and delivered them
to Defendant, who thereafter deposited the checks into her personal bank account. Id.
In December 2015, Plaintiff bought the mortgage from U.S. Bank. See id. at 2.
Servicing of the mortgage was transferred to the Servicer in January 2016. Id. At some
point prior to the fire but during the foreclosure proceeding, Defendant claims that the
Servicer contacted her via telephone and informed her that it maintained its own insurance
policy to cover damage to the property. See Orozco Cert. at ¶ 6. Plaintiff is unaware of
any insurance on the property other than Defendant’s policy, but it does not outright deny
that a conversation occurred between Defendant and the Servicer. See Br. in Opp’n to
Cross-Mot. (“Pl.’s Reply”) 2–3, ECF No. 15.
Plaintiff filed its complaint on September 16, 2016, and the record reflects that
Defendant was properly served through her counsel on September 29, 2016. ECF Nos. 1,
4. Default was entered against Defendant on October 25, 2016. ECF No. 7. Three days
later, Plaintiff filed the instant motion for default judgment. ECF No. 8. On November
16, 2016, counsel requested an extension to respond to the instant motion, apologizing for
the delay and explaining that he was occupied with other matters and out of the country on
vacation for several weeks prior. See ECF No. 10. On November 21, 2016, Defendant
filed her opposition to default judgment and cross-moved to vacate default. ECF No. 13.
Plaintiff filed its opposition to Defendant’s cross-motion and a reply to Defendant’s
opposition on December 1, 2016. Finally, Plaintiff filed a motion for release of funds held
in a constructive trust pursuant to a preliminary injunction issued by this Court. ECF No.
18. This opinion will address both of Plaintiff’s motions and Defendant’s cross-motion.
Federal Rule of Civil Procedure 55 governs entries of default, providing, in pertinent
part: “The court may set aside an entry of default for good cause . . . .” Fed. R. Civ. P.
55(c). The Court must consider three factors in exercising its discretion to either grant or
deny a motion to set aside an entry of default: “(1) whether the plaintiff will be prejudiced;
(2) whether the defendant has a meritorious defense; (3) whether the default was the result
of defendant’s culpable conduct.” United States v. $55,518.05 in U.S. Currency, 728 F.2d
192, 195 (3d Cir. 1984) (citations omitted). The same three factors apply to the Court’s
consideration of whether to enter a default judgment. See Chamberlain v. Giampapa, 210
F.3d 154, 164 (3d Cir. 2000) (quoting $55,518.05, 728 F.2d at 195). The Third Circuit
“does not favor entry of defaults” and “require[s] doubtful cases to be resolved in favor of
the party moving to set aside the default  so that cases may be decided on their merits.”
See $55,518.05, 728 F.2d at 194–95 (quotation omitted).
Defendant raises four defenses in favor of vacating the entry of default: (1) the
parties lack privity of contract; (2) Plaintiff has failed to state a claim upon which relief
can be granted; (3) Plaintiff has failed to add all proper parties to the dispute; and (4) the
terms of the mortgage agreement do not impose the obligations on Defendant that Plaintiff
claims. See Def.’s Opp’n at 6–7. Defendant also argues that Plaintiff will not be prejudiced
by vacation of default because the Defendant’s delay in responding was minimal and the
Court’s issuance of a preliminary injunction has preserved Plaintiff’s potential rights to the
amount in controversy. See id. at 5–6. Additionally, Defendant argues that her conduct
was not reckless. See id. at 12–13.
Plaintiff responds that it is entitled to default judgment because Defendant cannot
allege any meritorious defense for the following reasons: (1) Defendant admits all facts
supporting judgment in Plaintiff’s favor, see Pl.’s Reply at 7–11; (2) Defendant is
collaterally estopped from challenging the validity of the mortgage, see id. at 11–13; and
(3) Defendant’s defenses are barred by the New Jersey Recording Act (“NJRA”), see id. at
13–14. Plaintiff also argues that Defendant’s conduct is culpable because her failure to
respond was intentional and that Plaintiff will be prejudiced by vacation of default because
it requires the insurance proceeds to repair the property. See id. at 13–16. The Court will
consider these arguments under the aforementioned three-factor rubric.
Prejudice to Plaintiff
Plaintiff’s claim that it requires the insurance proceeds to repair the property does
not support a finding of prejudice. “Delay in realizing satisfaction on a claim rarely serves
to establish the degree of prejudice sufficient to prevent the opening [of] a default judgment
entered at an early stage of the proceeding.” Feliciano v. Reliant Tooling Co., Ltd., 691
F.2d 653, 656–57 (3d Cir. 1982) (citation omitted). Plaintiff has not asserted that its ability
to pursue the claim has been hindered since the entry of default. See id. at 657. This Court
has also granted Plaintiff a preliminary injunction, freezing the assets at issue and
preventing dissipation. Plaintiff, therefore, has not been prejudiced by Defendant’s late
response and this factor favors vacating default. See id.
A meritorious defense is established when a defendant’s allegations would
constitute a complete defense, if established at trial. See $55,518.05, 728 F.2d at 195.
Defendant raises four defenses that would provide complete defenses to Plaintiff’s claim
on the insurance proceeds. The Court, therefore, will focus on Plaintiff’s arguments that
Defendant cannot raise these defenses.
First, Plaintiff asserts that Defendant has admitted all of the facts supporting
Plaintiff’s allegations because of Defendant’s failure to respond to Plaintiff’s motion for a
preliminary injunction. See Pl.’s Reply at 7. Plaintiff cites Federal Rule of Civil Procedure
8(b)(6), which provides that an allegation is deemed admitted if a responsive pleading is
required and the allegation is not denied. Plaintiff misapplies Rule 8 to a motion for relief
from the Court, such as a preliminary injunction. Defendant was not required to respond
to Plaintiff’s motion for a preliminary injunction and, therefore, she has not admitted any
of Plaintiff’s factual allegations by failing to respond to that specific motion.
Second, Plaintiff argues that Defendant is estopped from making any arguments
concerning the validity of the mortgage pursuant to the doctrine of res judicata. See Pl.’s
Reply at 12. Plaintiff seeks to impose non-mutual offensive collateral estoppel against
Defendant. See Mann v. Estate of Meyers, 61 F. Supp. 3d 508, 522–23 (D.N.J. 2014)
(defining offensive collateral estoppel).
Collateral estoppel precludes parties from litigating issues at trial where four factors
are met: (1) the identical issue was previously adjudicated; (2) the issue was actually
litigated; (3) the previous determination was necessary to the decision; and (4) the party
being precluded from relitigating the issue was fully represented in the prior action. See
Smith v. Borough of Dumore, 516 F. App’x 194, 199 (3d Cir. 2013). “Moreover, where,
as here, a plaintiff attempts to assert nonmutual offensive collateral estoppel, the procedural
posture presents a unique potential for unfairness.” Id. (quotation omitted). District courts
“‘have broad discretion to determine when to apply non-mutual offensive collateral
estoppel.’” Id. (quoting Parklane Hosiery Co. v. Shore, 439 U.S. 322, 331 (1979)).
Here, Plaintiff points to an order from the Superior Court of New Jersey in
November 2013, which granted summary judgment to U.S. Bank against Defendant, and a
subsequent appellate decision affirming the judgment. See Certification of Sandhya M.
Feltes, Exs. 4–5. The trial court’s decision appears to have been issued orally and no
transcript was provided to the Court. The appellate decision affirms U.S. Bank’s standing
to file the foreclosure complaint, but does not address any other substantive issues that
were litigated, nor does it confirm which issues were necessary to the trial court’s decision.
This Court, therefore, has no way to determine from the record whether the defenses now
raised by Defendant were actually litigated and whether the previous determinations
addressing those defenses, if any, were necessary to the trial court’s decision. At a
minimum, Plaintiff has failed to establish the second and third factors supporting nonmutual offensive collateral estoppel. Additionally, the facts have changed considerably
since November 2013. The Court exercises its discretion in rejecting Plaintiff’s argument
that Defendant should be collaterally estopped.
Third, Plaintiff argues that Defendant’s defenses are barred by the NJRA. The
portion of the NJRA cited to by Defendant provides: “Any recorded document affecting
the title to real property is, from the time of recording, notice to all subsequent purchasers,
mortgagees and judgment creditors of the execution of the document recorded and its
contents.” N.J.S.A. 46:26A-12(a). Plaintiff argues that this portion of the statute makes
Defendant a subsequent purchaser, thereby subjecting her to the terms and conditions of
Plaintiff’s mortgage. See Pl.’s Reply at 14.
Defendant cites to a separate New Jersey statute covering mortgages, which
establishes that a purchaser of real estate shall not be deemed to have assumed the debt of
an existing mortgage on the property unless expressly stated in writing. See N.J.S.A. 46:97.1. Plaintiff did not make any argument in its reply addressing this statute, which appears
to be in direct conflict with how Plaintiff interprets the NJRA. Furthermore, none of the
cases Plaintiff cites to address the applicability of this express writing requirement where,
as here, real estate was conveyed via quit claim deed while subject to an existing mortgage.
The Court makes no finding as to whether these statutes are actually conflicting or
as to which statute properly applies in the instant case. The Court only notes that real
questions of law and fact remain that warrant full litigation. Thus, this factor favors
vacating default. See $55,518.05, 728 F.2d at 194–95.
Plaintiff argues that Defendant’s failure to respond was intentional and, therefore,
culpable. See Pl.’s Reply at 16. Culpable conduct is an action taken willfully or in bad
faith. See Gross v. Stereo Component Sys., Inc., 700 F.2d 120, 123–24 (3d Cir. 1983). The
record does not reflect willful conduct or bad faith on the part of Defendant. To the
contrary, it is plainly Defendant’s counsel who is responsible for the delayed response. See
ECF No. 10. Oversights by counsel do not amount to the type of culpability required here.
See Dambach v. United States, 211 F. App’x 105, 109–10 (3d Cir. 2006). This factor
favors vacating default.
Motion to Release Funds
Finally, Plaintiff moves for the release of funds, which were portions of the
insurance proceeds used by Defendant to purchase three properties in Essex County. See
Certification of Sandhya M. Feltes ¶ 12, ECF No. 18-2. The Sheriff of Essex County
distributed the funds to Plaintiff after service of this Court’s preliminary injunction order
and Plaintiff subsequently deposited them into a trust account. See id. at ¶¶ 13–15. As
noted, the Court will vacate default and require the parties to fully litigate the issues before
it. Plaintiff’s request prior to a final judgment on the merits is improper and denied.
For the reasons stated above, Plaintiff’s motions for default judgment and release
of funds are DENIED. Defendant’s cross-motion to vacate default is GRANTED.
/s/ William J. Martini
WILLIAM J. MARTINI, U.S.D.J.
Date: January 23, 2017
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