A state appeals court approved a New Jersey attorney's attempt to enforce a mortgage loan made to a longtime friend and client by forcing the purchased property into foreclosure after the loan wasn't repaid.

The Appellate Division panel said the defendant “turned to his attorney, who was also his friend and 'angel,' to get the money he needed,” and there was no attempt by the attorney to “hoodwink” his client and friend in the deal, though the attorney failed to get the client's informed consent in writing.

“This case did not involve an instance in which an attorney sought to take advantage of a vulnerable client,” the panel said in an opinion delivered by Judges Richard Hoffman and Catherine Enright on May 24, affirming the court below.

According to the decision in Burger v. Amjady, attorney Howard Burger and businessman Al Amjady had shared a friendship stretching back two decades. Amjady sought Burger's help in buying the lot where his car dealership was formerly located. Burger agreed to a $150,000 loan after Amjady promised to pay it back once the property became profitable. But profits didn't materialize, and Burger took Amjady to court when Amjady failed to pay back any of the loan, the decision said.

“Here, plaintiff did not 'hoodwink' a 'helpless' client in a venture 'essentially for the benefit of the lawyer,'” the panel wrote. “Further, the trial court's findings explain the fairness of the deal to defendant. Defendant received a loan he could not otherwise obtain. Even if he had obtained another loan, the record demonstrates the interest rate would have greatly exceeded the rate plaintiff charged defendant.

“As the trial court explained, if anyone received an unfair deal, it was plaintiff,” the panel wrote.

Besides Burger, others listed as plaintiffs in the case are trusts benefiting Burger's daughters.

“One is generally pleased when one gets a favorable decision from the Appellate Division,” Burger, of Burger & Petino in Kenilworth, said by phone. He declined to comment further because of pending litigation on three other loans he said he made to Amjady.

Burger is representing himself and the trusts.

Amjady is represented by James Mackevich of Mackevich Burke & Stanicki in Clark.

“I'm very disappointed in the decision,” Mackevich said in a phone interview. “The defendant believed that a finding of a violation of RPC 1.8 mandated a determination that the mortgage was invalid. The trial court and appellate court held otherwise.”

The case was on appeal from the Union County Superior Court Chancery Division.

According to the decision, Amjady owned and operated a liquor store in the 1980s, and Burger represented him in the purchase and subsequent sale of his store. Since that time, Burger represented Amjady and his family in a number of cases.

The economy and Amjady's financial problems would play a role in souring the relationship, the court said.

In 1992, according to the decision, Amjady lost his home to foreclosure and declared personal bankruptcy. He went into the used-car business, beginning as a salesman before starting his own business. Amjady later formed All Cars Corp., which Burger incorporated. In his new role, Amjady obtained financing for his customers, helped complete automobile loan applications, financed down payments, and financed the purchase of used vehicles. Amjady's business required a banking license in order to operate.

In 1997, Amjady decided to purchase the lot where he operated his used-car business. Burger represented Amjady in the transaction, but did not require him to pay legal fees, according to the court, which cited records showing that Amjady did not pay Burger legal fees for any work after 1990.

Burger counseled Amjady to purchase the lot and rent out portions of the property to pay off the financing costs. But according to the court, Amjady couldn't obtain financing due to his credit history, which included the bankruptcy and foreclosure, and because there had not been an environmental study conducted on the property. As a result, he sought Burger's help in getting the financing, and Burger agreed to lend him $150,000. The purchase of the lot and the loan were completed on Sept. 16, 1997, the decision noted.

The appeals court said no formal loan application was ever filed, the interest rate was 12%, and Amjady's income tax return showed he made $39,000 the year he borrowed the money, not enough to qualify for a $150,000 loan.

The court noted that although the note was a 12% interest-only note, payable on demand, apparently only 8% interest was actually charged and paid. Burger drafted the loan documents using “plain language forms by All State Office Supply.”

Burger also made several other mortgage loans to Amjady related to purchasing the lot and running the business, the court said. Central to the dispute is a loan for $45,000 from Burger and two trusts.

In September 2014, Burger told Amjady he planned to retire and demanded payment of the loan principal. Amjady instead offered to pay $6,000 per month beginning September 2016. Burger agreed to wait. But in late 2016, Amjady advised Burger he would not make the payments, according to the decision.

Burger attempted to resolve the dispute with Amjady, but to no avail.

In January 2017, Burger filed the foreclosure action, and the matter proceeded to trial. Judgment was entered in Burger's favor.

The Appellate Division on May 24 affirmed in a per curiam decision.

“Here, the trial judge made specific findings of fact regarding the propriety of the transaction: (1) that the defendant was a sophisticated businessman as a borrower; (2) that the client asked the lawyer for the loan because he couldn't get the money elsewhere; (3) that the loan was made out of friendship; (4) that the client signed the loan documents; (5) that the client paid interest only and knew it was interest only … from the existence of the loan … without complaint; (6) that the loan was fair and reasonable to the client. He could not get the same loan elsewhere, but plaintiff could've invested elsewhere for better results; and (7) the credibility of the client, Mr. Amjady, was stretched beyond the limits of credulity.

“The parties do not dispute an attorney-client relationship existed at the time of the loan,” the panel wrote.

“Courts hold attorneys to a high standard of fairness, good faith, and fidelity. Because of this high duty, 'an attorney's freedom to contract with a client is subject to the constraints of ethical considerations and the Supreme Court's supervision,'” the court added, citing Cohen v. Radio-Elecs. Officers Union from 1996.

The panel said the Rules of Profession Conduct expressly forbid an attorney from entering a “business transaction with a client or knowingly acquiring an ownership, possessory, security or other pecuniary interest adverse to a client unless” the terms are fair, the client is advised in writing about independent counsel, and the client gives informed consent in writing on the terms and the lawyer's representation of the client in the deal.

On May 9, 1997, Burger sent Amjady a letter describing the change in their relationship and outlining the terms of the loan, according to the court. The letter also advised Amjady to seek independent counsel.

Burger did not confirm Amjady's informed consent in writing, which fell short of RPC 1.8(3).

But the Appellate Division said, “although plaintiff did not obtain a written informed consent, his failure to achieve exact compliance with the RPC does not preclude him from enforcing the loan because the record otherwise contains clear and convincing evidence that the intent and purpose of the rule was satisfied.”

“The trial court's factual findings support its legal conclusion finding the agreement legally enforceable,” wrote the panel, noting that it was Amjady who sought out Burger for the loan. “Plaintiff fully disclosed the facts underlying the transaction and avoided interdependence of action.”

The panel said Amjady's business sophistication and experience with loans, having even obtained a banking license for his business, were also factors in the analysis, “since sophisticated parties are less susceptible to being taken advantage of.”

“As the trial court determined … the loans contained favorable interest rates to defendant. A commercial lender would have required around 18 percent interest, whereas plaintiff lent at a maximum of 12 percent,” the panel said.