Polk v. SchwartzPolk v. Schwartz
SEIDMAN, J.A.D.
By leave granted, plaintiffs appeal from an order discharging of record a lis pendens filed in connection with a suit instituted by them against defendants in Chancery Division.
The complaint alleged that plaintiffs are the owners of a nursing home facility in Atlantic City which they acquired in 1974 from Senator Holding Corporation, and also the successоrs in interest of the former Senator Holding Corporation which leased the premises in 1971 to the Senator Convalescent Center Corporation, all the stock of which was owned by plaintiffs. In 1972 plaintiffs sold 90% of their stock to а group of investors “organized and directed” by defendants David Schwartz and Elliot S. Gross, for the sum of $900,000, of which one-half was paid in cash and the remainder was to be paid in monthly installments of $4,200 over a period of ten years, at thе expiration of which the balance would be due and payable. According to the complaint, the sole asset acquired by the stockholders was the
Plaintiffs contended in their complaint that the individual defendants David, Milton and Sidney Schwartz and Elliot Gross thereafter “conspired to deplete the corporation [SCCC] of its assets and working capital, and to defraud the plaintiffs of the sums due under the leаse and of the balance due under the sale of the stock by performing” certain “overt acts.” These acts included, allegedly, mismanaging the financial and nursing care operation of the home, resulting in a civil suit by the Publiс Advocate and the appointment of a state supervisor; drawing excessive salaries from the operating facility; charging personal expenditures, such as car rental, legal fees, travel and life insurance, to the operating facility; borrowing an interest-free total of $140,000 from the facility without a corporate resolution and failing to repay said loans; failing to pay federal withholding taxes and state unemploymеnt disability insurance after deducting same from employees’ wages, resulting in government levies against the corporation; withdrawing $60,581.75 from Shore Manor, Ltd. and advancing such sum to Atlantic Senator Associates without a corporate resolution, security or interest; converting $180,000 of patients’ personal Medicaid funds to personal use; acquiring adjacent land in the name of David Schwartz’ son-in-law for a parking lot with Shore Manor, Ltd. funds, which land was then lеased to Shore Manor, Ltd. at an excessive monthly rate of $2,500.
Plaintiffs also alleged that an order was entered in Chancery Division appointing a medical receiver for the nursing home. They contended that this “deprived the plaintiffs of the sums due from the defendants” and was allegedly caused by “the conduct and financial mismanagement of the defendants resulting in depleting the corporation of sufficient
They further alleged that during this period of alleged financial mismanagement of the nursing home a total of $632,174.63 due them under the lease and the contract of sale was fraudulently retained by the individual dеfendants and used to purchase certain properties in Atlantic City. The breakdown of sums allegedly due plaintiffs is as follows: $184,066.60 for rent due under the lease; $65,000 for a percentage rent due under the lease; $28,108.03 for real estate taxes which defendants were obligated to pay under the lease, and $355,000 representing the balance remaining on the contract of sale. These amounts accrued during the period from September 1, 1977 tо June 19, 1978. The first four counts of plaintiffs’ complaint demanded judgment in these amounts.
In the fifth count plaintiffs sought to have a constructive trust imposed upon certain properties acquired by the individual defendants in Atlantic City either in thеir names, in the names of certain corporations or in other individual names. Plaintiffs alleged that defendants David, Milton and Sidney Schwartz and Elliot Gross conspired to deplete Shore Manor, Ltd., of its assets and working capital, thereby depriving plaintiffs of the sums due them, in order to use the funds to acquire the properties in Atlantic City. A constructive trust was sought on these properties “in order to satisfy the sums due and owing” plaintiffs. The properties listed by plаintiffs were all acquired between June 1, 1977 and July 27, 1978, and were purchased at prices ranging from $5,500 up to $1,500,000. Title was taken in the following names: four in the name of defendant 17 Realty Associates, Inc., a New Jersey corporatiоn with its principal place of business located at 181 Beach, 145th Street, Belle Harbor, New York, the residence of defendant David Schwartz; three in the name of defendant David Schwartz; one in the names of defendant 17 Realty Associates and defendant Milton Schwartz; one in the names of defendants
In other counts, plaintiffs also sought damages for failure to keep the leased premises in good repair as required by the lease, and also punitive damages.
In granting defendants’ motion to discharge the lis pendens, which described the above-mentioned parcels of real estate, the trial judge stated that “it is obvious that on the face of thе complaint filed in this cause, which seeks money damages notwithstanding the fact that it says that certain moneys were used in the corporation improperly or albeit illegally, there is no right in the opinion of the Court under the present statute to file a lis pendens.”
There is no doubt that an action to impress a constructive trust on realty affects title to that рroperty, so that a notice of lis pendens may be filed under a statute such as ours. General Elec. Credit Corp. v. Winnebago of N.J., 149 N.J. Super. 81 (App. Div. 1977); 54 C.J.S. Lis Pendens § 23 at 592. See Suess v. Stapp, supra; Grossfeld v. Beck, 42 A.D.2d 844, 346 N.Y.S.2d 650 (App. Div. 1973); Keating v. Hammerstein, 196 App. Div. 18, 187 N.Y.S. 446 (App. Div. 1921); Novitsky v. Ruda, 138 Misc. 346, 244 N.Y.S. 699 (Sup. Ct. 1930); cf. Health Betterment Foundation v. Thomas, 225 Ark. 529, 283 S.W.2d 863 (Sup. Ct. 1955). It has been held that the propriety of a lis pendens must stand on the allegations in the pleadings. Will of Sabatino, 90 Misc.2d 56, 393 N.Y.S.2d 671 (Surr. Ct. 1977); that is, upon a motion to cancel or discharge a lis pendens, the court may not consider anything other than whether the complaint sufficiently states a cause of action to impress a trust. For this purpose, the allegations of the complaint must be taken
As indicated, the trial judge viewed plaintiffs’ cause of action as being merely one for the recovery of money damages, thus precluding the filing of a notice of lis pendens. He did not directly address the question of whether the facts alleged in the fifth count, if true, would entitle plaintiffs to the equitablе relief sought therein. But on its face the fifth count of the complaint is founded upon more than the mere failure of a creditor to pay a debt. Respondents’ brief demonstrates their awareness of this, since the contention advanced therein is that
* * * the Appellants have failed to address the issue as it affects the Court‘s decision to allow a lis pendens to remain on property. A claim for money damages only will not permit the filing of a lis pendens. The Appellants have not been precluded from exercising their claim for a constructive trust with the discharge of the lis pendens. They have only been precluded from needlessly encumbering the property of the defendants while they assert such a claim.
It appears to us that unless the complaint unequivocally recited a cause of action which, under the statute, would not permit the filing of a notice оf lis pendens, it was not appropriate for defendants to move directly for a discharge of the notice; instead, they should have moved either to dismiss the complaint or pertinent counts thereof for failure to state а claim upon which relief can be granted or for summary judgment, which motion would have included a
Accordingly, the order discharging the notice of lis pendens is reversed and the said notice of lis pendens is reinstated.