CASE STUDY 6
Genid v. J.P. Morgan Chase & Co., No. A-2570-14T2, 2016 N.J. Super. Unpub. LEXIS 2636 (Super. Ct. App. Div. Dec. 12, 2016)
Plaintiffs also argue their CFA claim, based on defendant's allegedly improper denial of their loan modification application, should not be precluded by the federal Home Affordable Modification Program (HAMP), a program created by the Emergency Economic Stabilization Act, 12 U.S.C.A. §§ 5201-5261 (2008). This is a response to defendant's contention during oral argument that plaintiffs' claim is merely a HAMP claim repackaged as a CFA claim. Indeed, although HAMP does not provide borrowers a private right of action, we have held it does not bar all State law claims. Miller v. Bank of Am. Home Loan Servicing, L.P., 439 N.J. Super. 540, 547, 110 A.3d 137 (App. Div.), certif. denied, 221 N.J. 567, 115 A.3d 834 (2015). Moreover, the trial judge did not rely on this theory of claim preclusion in either of his written decisions.
Genid v. J.P. Morgan Chase & Co., No. A-2570-14T2, 2016 N.J. Super. Unpub. LEXIS 2636, at *5 (Super. Ct. App. Div. Dec. 12, 2016)
***references to our other reversal also a published case.
Finally, plaintiffs argue the motion judge erred by finding the CFA claim was "germane" to the foreclosure action, and therefore barred by the entire controversy doctrine. We conclude that regardless of the judge's finding that a CFA claim is "germane," it was error to categorically conclude the entire controversy doctrine bars the claim without further analysis.
Rule 4:30A codifies [*6] the entire controversy doctrine as it applies to all types of actions but contains an exception limited to foreclosure actions. It provides: "Non-joinder of claims required to be joined by the entire controversy doctrine shall result in the preclusion of the omitted claims to the extent required by the entire controversy doctrine, except as otherwise provided by R. 4:64-5(foreclosure actions)[.]" Thus, it is clear Rule 4:64-5 controls in foreclosure actions. The purpose of this equitable doctrine of entire controversy is "to eliminate delay, prevent harassment of a party and unnecessary clogging of the judicial system, avoid wasting the time and effort of the parties, and promote fundamental fairness." Aetna Ins. Co. v. Gilchrist Bros. Inc., 85 N.J. 550, 556, 428 A.2d 1254 (1981) (quoting Barres v. Holt, Rinehart and Winston, Inc., 74 N.J. 461, 465, 378 A.2d 1148 (1977) (Schreiber, J., dissenting)).
Rule 4:64-5 however modifies the scope of the entire controversy doctrine in foreclosure cases:
Only germane counterclaims and cross-claims may be pleaded in foreclosure actions without leave of court. Non-germane claims shall include, but not be limited to, claims on the instrument of obligation evidencing the mortgage debt, assumption agreements and guarantees. A defendant who chooses to contest the validity, priority or amount of any alleged prior encumbrance shall do so [*7] by filing a cross-claim against that encumbrancer
On its face, Rule 4:64-5 establishes two categories of counterclaims that may arise in a foreclosure action. First, the rule explains that "non-germane" claims cannot be brought as counterclaims in the foreclosure action, and thus they must be exempt from preclusion under the entire controversy doctrine. For example, because a claim for unpaid rent is non-germane to a foreclosure action, it cannot be joined as a counterclaim in that same foreclosure action; naturally, a later suit for rent would not be barred by the entire controversy doctrine. Luppino v. Mizrahi, 326 N.J. Super. 182, 184-85, 740 A.2d 1111 (App. Div. 1999).
Plaintiffs first argue the entire controversy doctrine does not affect the instant CFA claim because it was non-germane to the foreclosure case. Both parties acknowledge that there is no published case on point that squarely decides whether a CFA claim is germane to a foreclosure action for Rule 4:64-5 purposes. To determine which types of claims are germane, "a liberal rather than a narrow approach" should be used. Leisure Tech.-Ne. Inc. v. Klingbeil Holding Co., 137 N.J. Super. 353, 358, 349 A.2d 96 (App. Div. 1975). Despite explicitly being a rule of limitation, Rule 4:64-5has been interpreted broadly enough to permit foreclosure defendants to raise defenses to the foreclosure action. See Sun NFL Ltd. P'ship v. Sasso, 313 N.J. Super. 546, 550-51, 713 A.2d 538 (App. Div. 1998).
We agree with the motion [*8] judge to the extent he found plaintiffs' CFA claim to be germane to the foreclosure action. However, we find his ultimate conclusions to be in error. As explained above, Rule 4:64-5 establishes two categories of counterclaims in foreclosure actions. The second category, "germane" counterclaims, are merely a species of permissive counterclaims. Rule 4:64-5 ("Only germane counterclaims . . . maybe pleaded in foreclosure actions without leave of court.") (emphasis added). After determining that plaintiffs' CFA claim was germane to the foreclosure action, the trial judge made a categorical determination that the CFA claim must therefore have been brought in the foreclosure action: "Plaintiffs' claim is germane to the previous foreclosure action and was therefore properly precluded by New Jersey's Entire Controversy Doctrine. . . . Plaintiffs' desired relief must be found, if at all, in their pending appeal of the denial of their motion to vacate." The motion judge's reasoning for dismissing plaintiff's claim on a Rule 4:6-2(e) motion rested entirely on finding that a CFA claim was barred under the entire controversy doctrine because it was "germane" to the foreclosure action and therefore could have been brought as a counterclaim. [*9]
We acknowledge that we have previously stated the "failure to raise the defenses and counterclaims in the foreclosure action very well [may bar] assertion of those claims and defenses in a subsequent action" in the foreclosure context. Sasso, supra, 313 N.J. Super. at 551 (citing Joan Ryno, Inc. v. First Nat'l Bank of S. Jersey, 208 N.J. Super. 562, 506 A.2d 762 (App. Div. 1986). However, defendants' reliance on Joan Ryno is misplaced. Joan Ryno involved a foreclosure action followed by a Law Division action in which the foreclosure defendant alleged the plaintiff bank improperly refused to honor a mortgage commitment. 208 N.J. Super. at 566-67. In that case, the trial judge invoked the single controversy doctrine to bar the introduction of evidence of damages incurred during foreclosure. Id. at 567. We held that by barring only some of the damage claims the trial judge defeated the purpose of the entire controversy doctrine. Id. at 571. In so holding, we relied on Hadley v. Baxendale, 9 Ex. 341, 156 Eng.Rep. 145 (1854), and its progeny to bar recovery where damages are too remotely connected to the breach. Joan Ryno, supra, 208 N.J. Super. at 571.
More importantly, the weight of Joan Ryno is further diminished considering the portion of Rule 4:64-5 regarding claim joinder in foreclosure actions was not adopted until September 1992, more than five years after the Joan Ryno decision. While Sasso itself was decided after this [*10] date, this case merely quotes Joan Ryno in dicta without reference to the applicable rule.
Beyond this, the parties do not cite any reported cases in which the entire controversy doctrine and Rule 4:64-5 were used to preclude a foreclosure defendant from bringing an arguably germane counterclaim in a separate suit at a later time. Further, the plain language of Rule 4:64-5 unambiguously establishes counterclaims brought in foreclosures actions must be germane, but that they remain permissive. Nothing in Rule 4:64-5 mandates all germane counterclaims must be brought in the foreclosure action.
The abundance of foreclosure actions has resulted in substantial delays in the resolution of these actions. We conclude that requiring every possible germane counterclaim be raised as part of foreclosure actions is not consistent with the entire controversy doctrine's purpose. In foreclosure actions some litigants may be tempted to file counterclaims only to delay the loss of a property, where they reside at no cost, because they have defaulted on their payments, sometimes for years. In addition, attorneys may feel compelled to raise every possible counterclaim in the foreclosure action to avoid malpractice claims. Requiring a party [*11] to raise all possible germane counterclaims would further bog down the foreclosure process in a manner inconsistent with both the text of Rule 4:64-5 and the entire controversy doctrine. Rule 4:64-5 limits the issues that may be litigated within the foreclosure action, and does not require that all germane claims must be raised during the foreclosure action. It was therefore error for the motion judge to categorically conclude the entire controversy doctrine barred plaintiffs' claim merely because it was a germane counterclaim. As such, we conclude the order dismissing plaintiff's complaint must be reversed.