LOFARO & REISER, L.L.P.
55 Hudson Street Hackensack, New Jersey 07601 (201) 498-0400 Attorneys for Plaintiff BS PROJECTS, INC., as assignee of Fleet Bank, Inc., Plaintiff, vs. JON M. REGIS, MD, DEBRA REGIS, RELIANCE MEDICAL GROUP, LLC, as successor in interest to Reliance Medical Group, P.C., and RELIANCE HEALTH SYSTEM, L.L.C., Defendants. ____________________________________ JOHN M. REGIS, MD, DEBRA REGIS, RELIANCE MEDICAL GROUP, LLC, as successor in interest to RELIANCE MEDICAL GROUP, P.C., Defendant/Counterclaimants and Third-Party-Plaintiff, vs. SIGNATURE MEDICAL MANAGEMENT GROUP, LLC, SIGNATURE HEALTHCARE GROUP, LLC, CRAIG B. SANDERS, individually, and in his capacity as sole shareholder of BS Projects, Inc. and sole member of Signature Medical Management Group, LLC and Signature Healthcare Group, LLC, ABC, LLC #1-5 (fictitious); MEMBERS of ABC, LLC #1-5 (fictitious); XYZ CORPORATION #1-5 (fictitious); SHAREHOLDERS of XYZ CORPORATION #1-5 (fictitious); ABC PARTNERSHIP #1-5 (fictitious); PARTNERS of ABC PARTNERSHIP #1-5 (fictitious), Third Party Defendants. SUPERIOR COURT OF NEW JERSEY LAW DIVISION: ATLANTIC COUNTY DOCKET NO.: ATL-L-2162-07
BRIEF IN OPPOSITION TO DEFENDANT/THIRD PARTY PLAINTIFFS’ MOTION ON SHORT NOTICE TO STAY EXECUTION OF JUDGMENT PENDING FEBRUARY 20, 2009 HEARING
On the brief: Glenn R. Reiser
PRELIMINARY STATEMENT Plaintiff BS Projects, Inc. (“BS Projects”) is both a judgment creditor and secured creditor under the Uniform Commercial Code. This Court has entered two (2) judgments in
plaintiff’s favor; namely, the December 11, 2008 judgment in the amount of $1,640,290.90 (the “$1.6 Million Judgment”), and the January 12, 2009 judgment in the amount of $200,000 (the “$200,000 Judgment). BS Projects submits this Memorandum of Law in opposition to the motion on short notice filed by defendants Jon M. Regis and Reliance Medical Group, LLC (collectively the “Regis Defendants”) to stay execution of the $200,000 Judgment through February 20, 2009. The Regis Defendants filed their motion on January 29, 2009. The Court has yet to set a return date. In further opposition to the Regis Defendants’ motion, plaintiff submits the Certification of Craig Sanders (“Sanders Cert.”). The $1.6 Million Judgment originally was subject to a stay of execution through January 31, 2009. During a case management conference conducted on January 28, 2009, the Court sua sponte extended the stay of the $1.6 Million Judgment to February 20, 2009. There is presently no stay of execution for the $200,000 Judgment, though the Regis Defendants have moved on short notice requesting that a stay be issued through February 20, 2009. Plaintiff has submitted Writs of Execution to the Court and is awaiting the entry and return of same. In the interim, to protect its rights as a secured creditor Plaintiff has issued
demand letters to certain account debtors requesting that all funds due and owing to the judgment defendants Jon M. Regis and Reliance Medical Group (collectively the “Regis Defendants”) be turned over to plaintiff in order to satisfy the $200,000 Judgment. In response, the Regis Defendants filed their motion on short notice seeking to stay any further collection efforts by plaintiff on the $200,000 Judgment.
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To permit a stay of the $200,000 Judgment and deprive BS Projects of its rights as both a judgment creditor and UCC-1 lien holder would only serve to prejudice BS Projects. The Regis
Defendants have not proffered a valid reason to stay execution of the $200,000 Judgment nor have they offered any consideration in the form of posting security or providing adequate protection payments to ensure that the value of BS Projects’ collateral is not further eroded. ABBREVIATED FACTUAL STATEMENT To refresh the Court’s recollection, the loan at issue in this case (Note B) originally was held by United Jersey Bank (“UJB”). UJB was later acquired by Summit Bank, and thereafter, Summit Bank merged with Fleet Bank. BS Projects subsequently purchased Note B from Fleet Bank pursuant to a Loan Sale Agreement dated April 28, 2004. Sanders Cert., at ¶ 2. In addition to being a judgment creditor, BS Projects holds a perfected security interest in certain assets of Reliance Medical Group, LLC (“Reliance Medical”) pursuant to a UCC-1 filing made in the State of New Jersey on October 3, 2006. Sanders Cert., at ¶ 3, and Exhibit A
thereto. The Collateral covered under plaintiff’s UCC-1 filing is defined in part, as follows: ALL ACCOUNTS RECEIVABLE OR ACCOUNTS OF DEBTOR. THOSE TERMS MEAN, IN ADDITION TO THE DEFINITION OF ACCOUNT PROVIDED IN THE UNFORM COMMERCIAL CODE, ANY RIGHT OF DEBTOR TO PAYMENT FOR GOODS SOLD OR LEASED OR FOR SERVICES RENDERED NOT EVIDENCED BY AN INSTRUMENT OR CHALLETEL PAPER AND INCLUDES A RIGHT TO PAY THAT HAS BEEN EARNED UNDER A CONTRACT ….ALL INTERESTS OF DEBTOR IN MONEY, CASH, NON-CASH AND OTHER PROCEEDS OF ALL OF THEDE ITEMS INCLUDING BUT NOT LIJMITED TO …DEPOSIT ACCOUNTS, CLAIMS AND DEMANDS, AND INSURANCE PROCEEDS…..” See Exhibit A to Sanders Cert.. (Emphasis added). The origin of plaintiff’s security interest in certain collateral of the Regis Defendants can be traced back to the Loan Assumption and Restructure Agreement dated October 29, 1999 (“Restructure Agreement”) by and between the various Reliance entities and Summit Commercial Leasing Corp. (“Summit Leasing”). See Exhibit B to Sanders Cert. Pursuant to the Restructure Agreement, the guarantor obligations of the Regis Defendants with respect to the 3
original debt owed to UJB and then to its successors Summit and Fleet, were extended to incorporate the debt encompassed by Note B. Restructuring Agreement, Background, p. 2, ¶ C.. The following provisions of the Restructure Agreement confirm the Regis Defendants granting of a security interest to Summit Leasing in the accounts receivable of Reliance Medical: BACKGROUND *** B. As collateral security for the existing and future debts, liabilities and obligations of Original Borrower to Lender (collectively the “Obligations”), Lender holds continuing liens on and security interest in and to, among other things, the following assets of Borrower and/or Buyer: all existing and future accounts receivable, contracts…and the cash and the non-cash proceeds (including insurance proceeds and proceeds of proceeds) thereof….”1 *** 6. Collateral Security
(a) Generally. The property in which a lien or security interest is granted and/or reaffirmed pursuant to the provisions of Subparagraphs 6(b) and (c) of this Agreement and the real and personal property mortgaged and pledged to Bank by Regis and Watson, together with the proceeds thereof, is herein collectively call [sic] the “Collateral.”2 (c) Rights In Property Held by the Obligor. As further security for the prompt payment and satisfaction of all Obligations evidenced by the Replacement Notes, Obligors hereby assign, transfer and set over to Lender, and original Obligors confirm Original Borrower’s prior assignment, transfer and setting over to Bank of all of Original Obligors’ right, title and interest in and to, and Obligors hereby grant Lender continuing liens on and security interest in and to, all of the following, wherever located, whether now owned or hereafter acquired, together with all replacements, additions and substitutions thereof and the proceeds thereof: (I) Accounts *** (iii) * * *3 Contracts
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Restructure Agreement, at p. 2, ¶B. (Emphasis added). Restructure Agreement, at p. 4, ¶6(a) 3 Restructure Agreement, at p. 4, ¶6(c). (Emphasis added).
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See Exhibit B to Sanders Cert. In addition, the Restructure Agreement authorizes BS Projects to exercise its rights and remedies in the collateral pursuant to the Uniform Commercial Code when an event of default has occurred, to wit: Remedies. After the occurrence of an Event of Default, Lender shall have in addition to the rights and remedies given it by this Agreement and the Financing Agreements, all those allowed by all applicable laws including, without limitation, the Uniform Commercial Code as enacted in any jurisdiction in which any Collateral may be located. Without limiting the generality of the foregoing, Lender may immediately, without demand of performance and without other notice (except as specifically required by this Agreement) or demand whatsoever to Obligors, all of which are hereby expressly waived, and without advertisement, sell at public or private sale or otherwise realize upon, in Princeton, New Jersey, or elsewhere, the whole or, from time to time, any part of the Collateral, or any interest in which Obligors may have therein.4 The Certification of Jon M. Regis (“Dr. Regis”) submitted with his motion contains several admissions that suggestion Reliance Medical is either insolvent or is on the verge of insolvency. For example, in paragraph 10 of his Certification Dr. Regis states: “If monies are withheld from RMG, RMG will suffer a substantial and irreparable harm and prejudice as it will be unable to continue with business activities.” Further, in paragraph 15 of his Certification Dr. Regis states: “RMG does not have reserves to allow even a one or two week cease of receipt of payments. Even a one or two week cease of payments from the City, Medicaid or the carriers because monies are withheld pursuant to BS Projects demand letters and/or monies are directly diverted to BS Projects, will significantly impact RMG’s ability to make payroll of seventy-five staff, including physicians and nurses who provide treatment, will be unable to make lease payments for the clinics, will be unable to pay for equipment and supplies. Essentially, the entire operations would be shut down….”
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Restructure Agreement, at p. 10, ¶10. (Emphasis added).
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LEGAL ARGUMENT POINT I DEFENDANTS HAVE NOT MET THEIR BURDEN FOR INJUNCTIVE RELIEF The following elements must be established to award a litigant pendente lite relief pending adjudication of the merits of the underlying claim at trial: (i) irreparable harm; (ii) the legal right underlying the claim is settled; (iii) all material facts are uncontroverted, and thus there exists a reasonable probability that movant will succeed on the merits of the underlying claim; and (iv) the balance of hardships between the relative parties in granting or denying the relief weighs in favor of the movant. Crowe v. De Gioia, 90 N.J. 126, 132-133 (1982). The
Court should be circumspect in granting pendente lite relief where to do so would be tantamount to giving the moving party the full measure of relief to which they may be entitled at a final hearing. Aldrich v. Union Bag & Paper Co., 81 N.J.Eq. 244 (Ch. 1913). The first element of “substantial harm” is met if a plaintiff is threatened with substantial, immediate, and irreparable harm if the injunction does not issue. Citizens Coach Co. v. Camden Horse R.R. Co., 29 N.J. Eq. 299, 303-304 (E. & A. 1878). It has been held that destruction or
significant impairment of the subject matter of the litigation constitutes irreparable harm. See Coleman v. Wilson, 123 N.J. Super. 310 (Ch. Div. 1973). The second element required for issuance of a preliminary injunction -the law on which plaintiff bases his/her claim be settled - is “tempered by the principle that mere doubt as to the validity of the claim is not an adequate basis for refusing to maintain the status quo.” Crowe v. De Gioia, 90 N.J. at 133. The third element of the test for pendente lite relief - reasonable
probability of their succeeding on the merits of the claim - requires plaintiff to demonstrate that all material facts are uncontroverted. Crowe v. De Goia, 90 N.J. at 133 (citing Citizens Coach v. Camden Horse R.R. Co., 29 N.J.Eq. 299, 305-306 (E. & A. 1878).
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Lastly, the fourth element of the test for pendente lite relief requires the Court to balance the equities involved and, should it determine that the possible harm to defendant resulting from the issuance of an injunction outweighs that threatening plaintiff should the injunction not issue, then plaintiff’s request for injunctive relief should be denied. Suenram v. The Society of the Valley Hospital, 155 N.J. Super. 593, 597 (Law Div. 1977). Application of the aforementioned criteria for pendente lite relief to the facts of the instant case warrants a denial of the Regis Defendants’ motion. Critically, the Regis Defendants have not even briefed these threshold requirements. Particularly, the Regis Defendants must
demonstrate that there is a probability of their succeeding either on the merits of their Counterclaim and Third Party Complaint. Their legal memorandum does not address the law that supports their affirmative claims, or allege that there is a reasonable probability that they will succeed on the merits. For that reason alone the Court should deny their motion. The expression, “actions speak louder than words”, couldn’t be more appropriate to describe the Regis Defendants’ failure to take the necessary steps to advance the prosecution of their third party claims within the fast track previously established by the Court back on December 11, 2008; i.e., they failed to make any efforts to depose Mr. Sanders in the months of December or January, despite the fact that the Court ordered that his deposition occur before the end of December. Yet, with plaintiff having hit a “nerve” by pursuing collection of Reliance Medical’s accounts receivable the Regis Defendants have suddenly awoken from their somnolence and have come to the Court on the 11th hour begging for mercy and looking for a “free ride.” Most respectfully, they are not deserving of any injunctive relief.
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POINT II PLAINTIFF IS ENTITLED TO DEMAND AND RECEIVE PAYMENTS FROM THIRD PARTY ACCOUNT DEBTORS WHO OWE FUNDS TO THE REGIS DEFENDANTS BECAUSE PLAINTIFF IS AN ARTICLE 9 SECURED CREDITOR AND JUDGMENT LIEN HOLDER
Pursuant to N.J.S.A. 12A:9-203, a security interest such as plaintiff’s UCC-1 lien on the accounts receivable of the Regis Defendants’ medical practices is enforceable against third parties.5 As a secured creditor, plaintiff is permitted to notify account debtors of the Regis
defendants to make payments directly to plaintiff, to receive those proceeds directly from the account debtors, and to exercise the rights of the Regis defendants with respect to the obligations of the account debtors. See N.J.S.A. 12A:9-607(a)(1), (2), and (3).6 Plaintiff has rightfully
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12A:9-203. Attachment and Enforceability of Security Interest; Proceeds; Supporting Obligations; Formal Requisites. (a) Attachment. A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment. (b) Enforceability. Except as otherwise provided in subsections (c) through (i), a security interest is enforceable against the debtor and third parties with respect to the collateral only if: (1) value has been given; (2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and (3) one of the following conditions is met: (A) the debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned; (B) the collateral is not a certificated security and is in the possession of the secured party under 12A:9-313 pursuant to the debtor's security agreement; (C) the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under 12A:8-301 pursuant to the debtor's security agreement; or (D) the collateral is deposit accounts, electronic chattel paper, investment property, or letter-of-credit rights, and the secured party has control under 12A:9-104, 12A:9-105, 12A:9-106, or 12A:9-107 pursuant to the debtor's security agreement.
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12A:9-607. Collection and Enforcement by Secured Party. (a) Collection and enforcement generally. If so agreed, and in any event after default, a secured party: (1) may notify an account debtor or other person obligated on collateral to make payment or otherwise render performance to or for the benefit of the secured party; (2) may take any proceeds to which the secured party is entitled under 12A:9-315; (3) may enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the debtor with respect to the obligation of the account debtor or other person obligated on collateral to make payment or otherwise render performance to the debtor, and with respect to any property that secures the obligation of the account debtor or other person obligated on the collateral;
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exercised its rights under the aforementioned provisions of Article 9 of the Uniform Commercial Code by issuing demand notices to the account debtors. The Regis Defendants continue to pour significant resources into prosecuting a frivolous Third Party Complaint, including their most recent filing of a voluminous motion for reconsideration designed to accomplish nothing but paper the Court and plaintiff’s counsel. Presumably, the Regis Defendants are funding the costs of this litigation from funds previously received from these and possibly other account debtors which, if true, is eroding plaintiff’s security interest in the accounts receivables of the medical practice. POINT III
IF THE COURT IS INCLINED TO GRANT ANY STAY OF EXECUTION AS TO $200,000 JUDGMENT, THEN THE COURT SHOULD REQUIRE DEFENDANTS TO POST SECURITY AS A CONDITION PRECEDENT
The Regis Defendants have not offered any monetary consideration or other form of adequate protection that would justify staying execution of the $200,000 Judgment. Instead, in an 11th hour attempt to sway the Court’s conscience the Regis Defendants have resorted to playing the violin, claiming that financial chaos will occur and patient care will be compromised absent a stay of the $200,000 Judgment to February 20, 2009. Most respectfully, these desperate arguments are nothing but red herrings offered by the Regis Defendants in their attempt to avoid or delay payment of a legitimate bank debt purchased by BS Projects. Our Court Rules and statutes provide several examples that require a judgment debtor or litigant to post security as a condition of staying execution or granting relief from a judgment or order. A primary example is R. 4:50-1 which governs applications by a party seeking relief from a judgment or order. When courts are presented with applications to vacate default judgments under R. 4:50-1 such relief can be conditioned upon defendant posting a bond to secure the default judgment. See Regional Const. Corp. v. Ray, 364 N.J. Super. 534, 541 (App. Div. 2003). In the context of motions to vacate default judgments courts can also impose the payment of
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reasonable counsel fees as being a less punitive measure than posting security as a condition precedent to vacating the judgment. A second example is R. 2:9-5, which permits the stay of execution of a final money judgment pending appeal: A judgment or order in a civil action adjudicating liability for a sum of money … which is the subject of an appeal or certification proceedings shall be stayed only upon the posting of a bond pursuant to R. 2:9-6 or a cash deposit pursuant to R. 1:13-3(c) unless the court otherwise orders on good cause shown.
A third example imposing the requirement that security be posted to stay execution of a judgment is found in N.J.S.A. 2A:49A-29,7 which requires that a defendant challenging the entry of a foreign judgment on appeal and requesting a stay of execution pending the outcome of the appeal must post security for the full satisfaction of the judgment. BS Projects is not aware of any specific rule or statute that governs a trial court’s ability to stay execution of its own judgments with or without posting security, let alone impose a temporary or indefinite stay. In the absence of a specific rule or statute such powers should be left to the Court’s sound discretion. If the Regis Defendants wish to receive the benefit of a “status quo” order on plaintiff’s ability to enforce its $200,000 judgments then they should be
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N.J.S.A. 2A:49A-29 states:
a. If the judgment debtor shows the Superior Court that an appeal from the foreign judgment is pending or will be taken, or that a stay of execution has been granted, the court shall stay enforcement of the foreign judgment until the appeal is concluded, the time for appeal expires, or the stay of execution expires or is vacated, upon proof that the judgment debtor has furnished security for the satisfaction of the judgment required by the state in which it was rendered.
b. If the judgment debtor shows the Superior Court any ground upon which enforcement of a judgment of the Superior Court would be stayed, the Superior Court shall stay enforcement of the foreign judgment for an appropriate period, upon requiring the same security for satisfaction of the judgment which is required in this State.
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required to post security as a condition precedent. Any other result would produce an imbalance of equities to plaintiff’s detriment and prejudice. In Amo v. Genovese, 17 N.J. Super. 109, 111 (App. Div. 1952), the Appellate Division summarized the concept of judicial discretion in great detail. Judicial discretion is an indispensable ingredient of judicial power. The trial judge must be invested with the magistracy of the courtroom procedure. Among his powers, yes duties, are those of presiding, of preserving order and decorum, of regulating the conduct of those who participate in the proceedings, the granting of continuances, and of so supervising the trial that there may be such economy of time, effort and expense as is commensurate with the rights of the parties to present their claims and defenses. It has been said that judicial discretion is that discretion which is not and cannot be governed by any fixed principles and definite rules because the possible eventualities to be dealt with in the exercise of that power cannot be specifically catalogued. Such a definition obviously offends accuracy….. Another Appellate Division case has defined “judicial discretion”, “(As) the option which a judge may exercise between the doing and the not doing of a thing which cannot be demanded as an absolute legal right, guided by the spirit, principles and analogies of the law, and founded upon the reason and conscience of the judge, to a just result in the light of the particular circumstances of the case.” Smith v. Smith, 17 N.J. Super. 128, 132 (App. Div. 1951) (internal citations omitted). In the case at bar, plaintiff maintains that the Court properly exercised its discretion in fashioning a remedy that was fair to both parties; namely, allowing plaintiff to pursue immediate execution of the $200,000 Judgment because that is the amount plaintiff paid to purchase Note B from the original lender, and granting the Regis Defendants a limited stay of execution on the $1.6 Million Judgment so that they could depose Mr. Sanders on their Third Party claims and have their day in Court. However, plaintiff did not contemplate that the Regis Defendants would sit on their rights for almost 5 weeks – making no effort whatsoever to depose Mr. Sanders since 11
the entry of the $1.6 Million Judgment on December 11, 2008. Under these circumstances and in the absence of the Regis Defendants sustaining their burden of proof under R. 4:49-2, the Court should deny their motion. Simply put, the Regis Defendants are not deserving of a stay of execution. As the Court correctly commented during the January 29, 2009 case management conference, the Regis Defendants “need to accept the reality of these judgments.”
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CONCLUSION Based on the foregoing reasons and authorities, the Court should deny the Regis Defendants’ motion to impose a temporary stay of execution on the $200,000 Judgment. Alternatively, the Court should not grant such relief in the absence of the Regis Defendants “putting their money where their mouth is” by posting security or other means of adequate protection to preserve BS Projects’ security interest in the accounts receivable of the Reliance Medical practice. Respectfully submitted,
LOFARO & REISER, L.L.P.
Attorneys for Plaintiff
By:____________________________________ Glenn R. Reiser Dated: January 30, 2009
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