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MMU of New York Inc. v. Greiser

A-5904-06T3 (N.J. Super. App. Div. 2008) (Unpublished)

LANDLORD-TENANT; UNCLEAN HANDS — Even though the defense of unclean hands may be raised against a tenant who failed to pay rent while remaining on the property, that doctrine cannot be used to bar the tenant from defending against a claim for rent payable after the tenant has vacated the premises.

A landlord and a tenant entered into a ten-year commercial lease. Roughly six months later, the tenant filed for bankruptcy but did not list the lease as an asset or liability and did not list the landlord as a creditor. The tenant remained on the premises for another six months but did not pay rent after filing for bankruptcy. The landlord then sued the tenant for the past due and future rent, and obtained a default judgment. Four years later, the landlord levied on and acquired properties that belonged to the tenant. The tenant subsequently brought a motion to vacate the default judgment on the grounds that the debt to the landlord had been discharged in the bankruptcy. The request was denied by both the lower court and the Appellate Division. Additional requests by the tenant to have the default judgment vacated were denied and the lower court eventually entered an order that prohibited the tenant from filing any more motions contesting the default judgment without permission. Four years after the lower court’s order, the lower court again denied the tenant permission to challenge the default judgment.

On appeal, the Appellate Division considered whether the lower court correctly denied the tenant’s request to challenge the default judgment on substantive grounds. The lower court had denied the tenant’s request on the principle that a wrongdoer’s actions in a transaction negates a right to relief based on the transaction, also known as the doctrine of unclean hands. According to the lower court, the tenant’s failure to pay rent while remaining on the property for six months negated its right to relief on his claims. The Court pointed out the doctrine of unclean hands was an equitable defense related to the proceedings, but held that the lower court improperly applied the principle to the tenant’s request. It found that the tenant had a reasonable argument that the landlord was not entitled to the total amount of rent due for the remaining nine years of the lease. The Court also pointed out that after the default judgment had been entered, the landlord re-rented the rental space, later sold the building, and then acquired the tenant’s properties. It also found that remaining on the property and not paying rent for six months, in and of itself, should not have prevented the tenant from challenging the amount owed under the default judgment.

The Court, itself, had issued an earlier decision where it applied the doctrine of unclean hands to the tenant’s claim for a discharge of the debt to the landlord after its other debts had been discharged through bankruptcy. However, it found that it was not applicable to the tenant’s request to challenge the validity or amount of the default judgment since remaining on the property was not relevant to his request. The Court noted that according to the lower court, the tenant had filed more than one hundred motions during the course of the proceedings, but it still questioned why the lower court offered no explanation why sanctions, which were more commonly used for litigants that showed a pattern of frivolous litigation, were not imposed and instead the lower court had barred the tenant from filing any additional motions. It also noted that the tenant, who had previously represented himself, had obtained counsel. The Court reversed the lower court’s decision to deny the tenant the right to challenge the default judgment. It did not reach a decision as to whether the tenant was precluded from obtaining relief on other grounds and remanded the matter to the lower court for further proceedings on the tenant’s claims.

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