Peapack Gladstone Bank, Etc. v. Brian J. Lessing

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ."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-3795-24 PEAPACK GLADSTONE BANK, n/k/a PEAPACK PRIVATE BANK & TRUST, Plaintiff-Respondent, v. BRIAN J. LESSING and HEATHER LESSING h/w, QUANTUM ENERGY DEVICES INCORPORATED, THE SECRETARY OF HOUSING and URBAN DEVELOPMENT and CREATIVE DENTAL CARE, Defendants-Appellants. ______________________________ Argued September 22, 2026 – Decided October 7, 2026 Before Judges Paganelli and DeAngelis. On appeal from the Superior Court of New Jersey, Chancery Division, Union County, Docket No. F- 000036-25. Joshua W. Denbeaux argued the cause for the appellants (Denbeaux & Denbeaux, attorneys; Michael Goryelov, on the briefs). Alan R. Ostrowitz argued the cause for respondents (Ostrowitz & Ostrowitz, attorneys; Martha D.F. Ostrowitz and Alan R. Ostrowitz, on the brief). PER CURIAM Defendants, Brian Lessing and Heather Lessing, appeal the July 9, 2025 order granting plaintiff's motion for final judgment by default and denying their cross-motion to vacate the default. Defendants challenge the trial court's determination that they were unable to show good cause or the existence of a meritorious defense, and therefore they failed to satisfy the standard necessary to set aside a default under Rule 4:43-3. Having considered the applicable law and record, we vacate the order denying relief, vacate the ensuing Final Judgment of Foreclosure, and remand for further proceedings consistent with this opinion. I. We glean the relevant facts from the motion record. Defendants obtained a Small Business Administration (SBA) loan that was guaranteed by their primary residence located in Scotch Plains, New Jersey. Defendants defaulted on the SBA loan on February 1, 2023. Plaintiff provided defendants with Fair A-3795-24 2 Foreclosure Notices in September 2023 and on September 12, 2024. The September 12, 2024 Fair Foreclosure Notice gave defendants until October 15, 2024 to resolve the default. Defendants did not satisfy the outstanding loan prior to the filing of the foreclosure complaint on January 2, 2025. The parties acknowledge that defendants submitted numerous offers to satisfy the default for less than was owed. These offers were repeatedly rejected by plaintiff. Defendants were personally served with the complaint on January 5, 2025. After not responding to the complaint, default was entered on March 21, 2025. Plaintiff's counsel issued a Final Notice to Cure to defendants on March 24, 2025. Thereafter, on March 26, 2025, defendants' counsel for the first time reached out to plaintiff's counsel to request that the default be vacated by consent. On April 16, 2025, plaintiff's counsel rejected the request. On April 24, 2025, prior to filing the Notice of Entry of Judgment, plaintiff provided a courtesy copy of the notice to defendants' counsel. As the loan remained outstanding, plaintiff filed the application for entry of Final Judgment of Foreclosure on May 27, 2025. On June 6, 2025, defendants filed a cross-motion to vacate default, sever their proposed counterclaims, and dismiss the complaint. Defendants argued A-3795-24 3 that plaintiff failed to comply with SBA guidelines in foreclosing against defendants' primary residence despite offers to resolve the default for less than the full balance due on the loan. On July 9, 2025, the trial court entered an order granting plaintiff's motion and denying defendants' cross-motion to vacate the default. The trial court found defendants did not demonstrate good cause for failing to respond to the complaint. Instead, the court acknowledged that defendants' only claim to show good cause was their argument that spending two months drafting their cross - motion demonstrated good cause. The court determined that defendants failed to demonstrate that their decision not to appear, answer the complaint, or oppose the entry of default, despite being aware of the action in January 2025, did not constitute contumacious behavior. In denying the motion to vacate, the court further relied on precedent that required, in foreclosure actions, the presence of a meritorious defense worthy of judicial determination. The court held that there was no private right of action for a lender's failure to follow SBA guidelines. The court also held that defendants did not provide any independent basis to support a finding that the proposed common law claims, which are not germane to a foreclosure action, were evidence of a meritorious defense. A-3795-24 4 After entry of the July 9, 2025 order, the matter was transferred to the Office of Foreclosure for the entry of a Final Judgment of Foreclosure. The Final Judgment of Foreclosure was entered on July 22, 2025. Defendants appeal both orders.1 II. Under Rule 4:43-3, a court may vacate an entry of default upon "good cause shown." The "requirements for setting aside a default under Rule 4:43-3 are less stringent than . . . those for setting aside an entry of default judgment under Rule 4:50-1." N.J. Mfrs. Ins. Co. v. Prestige Health Grp., LLC, 406 N.J. Super. 354, 360 (App. Div. 2009). Trial courts should view motions to vacate "with great liberality, and every reasonable ground for indulgence is tolerated to the end that a just result is reached." Marder v. Realty Constr. Co., 84 N.J. Super. 313, 319 (App. Div. 1964) (addressing motion to vacate default judgment). "A mere showing of good cause is required for setting aside an entry of default." N.J. Mfrs. Ins. Co., 406 N.J. Super. at 360 (citing R. 4:43-3). In 1 Defendants did not specify the grounds for dismissal of the complaint under Rule 4:6-2. The lack of stated grounds for dismissal and applicable standard of review is not at issue, as the defendants hinge the reversal of the Final Judgment of Foreclosure on the vacatur of the order entering default. A-3795-24 5 considering whether good cause exists, courts "typically cite three factors . . . [w]hether the default was willful or culpable; [w]hether granting relief from the default would prejudice the opposing party; and [w]hether the defaulting party has a meritorious defense." 10 Moore's Federal Practice - Civil § 55.70[2][a] (3d ed. 2013) (reviewing comparable Fed. R. Civ. P. 55(c), which states "[t]he court may set aside an entry of default for good cause"). In particular, "the showing of a meritorious defense is a traditional element necessary for setting aside both a default and a default judgment[.]" Pressler & Verniero, Current N.J. Court Rules, cmt. on R. 4:43-3 (2026). As with a motion to vacate a default judgment, there is no point in setting aside an entry of default if the defendant has no meritorious defense. "'The time of the courts, counsel and litigants should not be taken up by such a futile proceeding .'" U.S. Bank Nat'l Ass'n v. Guillaume, 209 N.J. 449, 469 (2012) (quoting Schulwitz v. Shuster, 27 N.J. Super. 554, 561 (App. Div. 1953)). We have noted This is especially so in a foreclosure case where the mere denominating of the matter as a contested case moves it from the expeditious disposition by the Office of Foreclosure in the Administrative Office of the Courts, R[ule] 1:34-6 and R[ule] 4:64-1(a), to a more protracted treatment by the Chancery Division providing discovery and raising other problems associated with trial calendars. If there is no bona fide contest, a secured creditor should have prompt recourse to its collateral. A-3795-24 6 [Trs. of Loc. 478 Trucking & Allied Indus. Pension Fund v. Baron Holding Corp., 224 N.J. Super. 485, 489 (App. Div. 1988).] Courts may consider "the absence of any contumacious conduct" in its "good cause" assessment. O'Connor v. Altus, 67 N.J. 106, 129 (1975). Although the absence of contumacious conduct may support a finding of good cause, the case law does not establish it as an independent and mandatory element that a movant must affirmatively prove under Rule 4:43-3. See O'Connor, 67 N.J. at 129 . "[T]he appropriate standard of review of an application to open, vacate or otherwise set aside mortgage foreclosure proceedings is whether the trial court abused its discretion." United States ex rel. U.S. Dep't of Agric. v. Scurry, 193 N.J. 492, 503 (2008); see also Customers Bank v. Reitnour Inv. Props., LP, 453 N.J. Super. 338, 348 (App. Div. 2018) (finding a decision regarding foreclosure, which is an equitable remedy, "will be reversed only for an abuse of discretion"). An abuse of discretion "arises when a decision is made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis. In other words, a functional approach to abuse of discretion examines whether there are good reasons for an appellate court to defer to the particular decision at issue." Customers Bank, 453 N.J. Super. at A-3795-24 7 348 (quoting Flagg v. Essex Cnty. Prosecutor, 171 N.J. 561, 571 (2002)). "When that deferential standard applies, the trial court's ruling should be reversed 'only if it was so wide off the mark that a manifest denial of injustice resulted.'" Beavan v. Allergan U.S.A., Inc., 264 N.J. 99 , 121 (2026) (quoting Rodriguez v. Wal-Mart Stores, Inc., 237 N.J. 36, 57 (2019)) (internal quotation marks omitted). Applying these principles, we conclude the court misapplied its discretion in denying defendants' cross-motion to vacate the entry of default and thereafter entering the July 22, 2025 final judgment of foreclosure. We, therefore, vacate the July 9, 2025 order denying defendants' cross-motion, and vacate the July 22, 2025 judgment. III. The trial court denied defendants' cross-motion to vacate the entry of default because it found they had not shown good cause, had not presented a meritorious defense, and had delayed appearing in the action despite being aware of it since January 2025. The trial court concluded those circumstan ces did not warrant vacatur. At oral argument, the parties agreed that after being served with the complaint, defendants remained in constant contact with plaintiff and were A-3795-24 8 attempting to satisfy the debt. The motion record shows that this information was not highlighted to the court. It is clear from the appeal defendants were not ignoring the complaint and were actively trying to resolve the debt. O'Connor does not impose a requirement that a defaulting party must affirmatively persuade the court that its conduct was not contumacious to secure vacatur. It appears the court mistakenly treated contumacious conduct as a required component of good cause. In O'Connor, the Court stated, "the absence of any contumacious conduct on the part of Altus" and "the presence of a meritorious defense" was "sufficient to constitute 'good cause' within the contemplation of [Rule] 4:43-3 and to justify the setting aside of the default." O'Connor, 67 N.J. at 129 . "Our [c]ourt [r]ules . . . have been understood as 'a means to the end of obtaining just and expeditious determinations between the parties on the ultimate merits.'" Alpha Beauty Distribs., Inc. v. Winn-Dixie Stores, Inc., 425 N.J. Super. 94, 102 (App. Div. 2012) (citing Ragusa v. Lau, 119 N.J. 276, 284 (1990)). Indeed, "the Supreme Court has recognized a 'strong preference for adjudication on the merits rather than final disposition for procedural reasons.'" Ibid. (citing Galik v. Clara Maass Med. Ctr., 167 N.J. 341 , 356 (2001)). A-3795-24 9 In Marder, we found that the defendant simply "alleged that it in fact had a meritorious defense[] but failed to include a statement as to what the defense was." 84 N.J. Super. at 318 . However, we determined that the lack of specificity of defendant's alleged meritorious defense was not an issue because a motion to vacate default "should be viewed with great liberality, and every reasonable ground for indulgence is tolerated to the end that a just result is reached." Id. at 319 (citing Foster, 63 N.J. Super. at 269-70). Accordingly, in deciding a motion to vacate an entry of default, courts apply Rule 4:43-3 standard liberally when setting aside a default based on plausible allegations of a meritorious defense. Defendants demonstrated a meritorious defense to the foreclosure complaint. Defendants represent they were prepared to pay off the loan, but plaintiff failed to provide a payoff statement and wiring instructions. If proven, these allegations could satisfy an independent common law claim for breach of contract. Thus, under Baron Holding, defendants have demonstrated good cause and a meritorious defense. We therefore vacate the entry of default and permit defendants to file responsive pleadings. A-3795-24 10 IV. Because the trial court denied vacatur, it did not reach defendants' requests to sever the counterclaims and dismiss the complaint. These issues should be addressed on remand. Regarding the issue of severance, "a trial court 'has broad case management discretion.'" Tenenbaum v. Allstate Ins. Co., 484 N.J. Super. 497 , 511 (App. Div. 2026) (quoting Lech v. State Farm Ins. Co., 335 N.J. Super. 254, 260 (App. Div. 2000)). "To that end, Rule 4:38-2(a) instructs that '[t]he court, for the convenience of the parties or to avoid prejudice, may order a separate trial of any claim, cross-claim, counterclaim, third-party claim, or separate issue, or of any number of claims, cross-claims, counterclaims, third-party claims, or issues.'" Ibid. (alteration in the original) (quoting R. 4:38-2(a)). Accordingly, "[t]he authority to sever claims 'rests in the trial court's discretion.'" Ibid. (quoting Procopio v. Gov't Emps. Ins. Co., 433 N.J. Super. 377, 380 (App. Div. 2013)). In foreclosure actions, Rule 4:64-5 provides: Unless the court otherwise orders on notice and for good cause shown, claims for foreclosure of mortgages shall not be joined with non-germane claims against the mortgagor or other persons liable on the debt. Only germane counterclaims and cross-claims may be pleaded in foreclosure actions without leave of court. A-3795-24 11 Non-germane claims shall include, but not be limited to, claims on the instrument of obligation evidencing the mortgage debt, assumption agreements and guarantees . . . . Here, defendants' proposed answer includes counterclaims regarding violations of the Consumer Fraud Act, breach of contract, and common law fraud which they seek to be addressed in the Law Division. On remand, the trial court should exercise its discretion and formally rule on the severance of the counterclaims. As noted above, defendants did not establish grounds for dismissal under Rule 4:6-2 or brief the cross-motion to dismiss in this appeal. The trial court did not reach defendants' request to dismiss. Accordingly, we remand the motion to dismiss to the trial court for further consideration. See Stanziale v. Monmouth Cnty. Bd. of Health, 350 N.J. Super. 414, 419 (App. Div. 2002) (explaining that despite reversing the trial court's order, an issue "not reached by the motion judge [in the order] . . . should be considered on remand"). In summary, we conclude that the court misapplied its discretion in denying defendants' motion to vacate the entry of default. We therefore vacate the July 9, 2025 order denying defendants' cross-motion, vacate the July 22, 2025 Final Judgment of Foreclosure, and remand for further proceedings, A-3795-24 12 including considerations of defendants' requests to sever and dismiss. We express no view on the ultimate merits of those applications. Vacated and remanded. We do not retain jurisdiction. A-3795-24 13