Opinion
No. 8727/2011.
2012-06-13
Cindy CIMERRING and Avram Cimerring, Plaintiffs, v. MERRILL LYNCH MORTGAGE INVESTORS, INC., et. al., Defendants.
Shapiro & Shapiro, LLP, Brooklyn, NY, for Plaintiff. Alston & Bird, LLP, New York, NY, for Defendant.
Shapiro & Shapiro, LLP, Brooklyn, NY, for Plaintiff. Alston & Bird, LLP, New York, NY, for Defendant.
DAVID I. SCHMIDT, J.
Upon the foregoing papers, defendants ORIX Capital Market, LLC, ORIX Real Estate Capital Markets, LLC, Jeffrey Yarkin, John Dinan, UBS Warburg Real Estate Securities, Inc. and UBS Paine Webber, Inc. (collectively, Defendants) move for an order, pursuant to CPLR 3211(a)(5) and (7), dismissing the Complaint in this action for causes of action, including breach of contract, misrepresentation, and negligence.
FACTS AND PROCEDURAL HISTORY
The Lee Hall Loan
Plaintiff Avram Cimerring (Cimerring)
and non-party Ran Nizan (Nizan) were the principals of Lee Hall LLC (Lee Hall), a company that sought financing for the purchase of four apartment complexes in Virginia (the mortgaged property). Cimerring and Nizan executed a personal guaranty (the Guaranty) on a Deed of Trust note (the Note) in order for Lee Hall to obtain a $17.4 million commercial mortgage loan (the Lee Hall Loan) from Wexford Bancorp (Wexford). Although Wexford was the payee on the Note, defendants UBS Warburg Real Estate Securities, Inc. and UBS Paine Webber, Inc. (collectively, UBS) table-funded the Lee Hall Loan with deeds of trust on the Virginia apartment complexes. Wexford immediately assigned the Lee Hall Loan to UBS at the closing on July 21, 1999.
Plaintiff's wife, Cindy Cimerring, is also a plaintiff herein. She wholly owns several entities that have also been sued in related actions: Canoco, Inc., Minora Corporation, Inc., and Merfin, Inc.
UBS then sold the Lee Hall Loan, as part of a pool of commercial mortgages, to Merrill Lynch Mortgage Investors, Inc. (MLMI) pursuant to a Mortgage Loan Purchase Agreement (the MLPA) dated November 1, 1999. The purchase price for the pool of loans was allegedly based on the accuracy of certain representations and warranties made by UBS regarding the quality of those loans. MLMI deposited the pool of loans from UBS, as well as other mortgage loans, into a commercial mortgage-backed securities (CMBS) trust (the Trust), which then issued mortgage pass-through certificates (MLMI Mortgage Pass–Through Certificates Series 1999–C 1) evidencing beneficial ownership therein. These certificates were then sold to investors in public and private offerings. The trustee of the Trust was Wells Fargo Bank, N.A., (Wells Fargo). By successful bid, ORIX Capital Market, LLC and ORIX Real Estate Capital Markets, LLC (collectively, ORIX) became Master Servicer of the Trust. In 2005, ORIX sold its Master Servicer rights and obligations to KeyCorp, Inc.
The Proceedings in Virginia
Lee Hall defaulted on the Loan. ORIX was appointed to be the special servicer for the Trust and to manage the Virginia apartment complex that was collateral for the Lee Hall Loan. ORIX foreclosed on the mortgaged property in October 2001 and sold it for $13,792,000.
The Trust then sought to recover the deficiency from the guarantors, Cimerring and Nizan, by filing a lawsuit against them in the Circuit Court for the City of Petersburg, Virginia (the Virginia Circuit Court). The Virginia Circuit Court found that Cimerring had committed various acts of fraud, and was personally liable as a guarantor for the deficiency owed on the loan as a result of those frauds.
Cimerring, by his attorney, stipulated to the Trust's damages in the amount of $6,218,920.95 and acknowledged that the proceeds from the foreclosure had already been credited against the amount owed on the debt (outstanding principal, interest, and fees, less the amount of proceeds from the foreclosure sales). The Virginia Circuit Court subsequently entered a judgment in the amount of $6,619,005.86 (the Deficiency Judgment) on February 18, 2003, consisting of the stipulated damages plus $400,084.91 in expenses and attorney's fees. In October 2003, the Virginia Supreme Court rejected Cimerring's appeal of the Deficiency Judgment.
Cimerring became the sole defendant at trial after Nizan filed for bankruptcy.
The UBS Settlement and Plaintiffs' Collateral Attack on the Deficiency Judgment
After entry of the Deficiency Judgment, Wells Fargo commenced a lawsuit in Texas state court against UBS for claims sounding in breach of contract and fraudulent misrepresentation of the quality of loans UBS sold to the Trust, including the Lee Hall Loan.
Wells Fargo sought to have UBS repurchase the Lee Hall Loan or pay damages equal to the repurchase price thereof. In September 2004, UBS and Wells Fargo signed a settlement agreement and mutual release (the UBS Settlement), pursuant to which UBS paid the Trust $19.375 million in “liquidation proceeds.” As required under the Pool and Servicing Agreement (PSA) between ORIX, Wells Fargo, and the Trust, the settlement proceeds were classified as payment upon one or more of the promissory notes held in the Trust for accounting purposes.
ORIX brought the suit on behalf of the Trust and Wells Fargo, as trustee.
In September 2005, Cimerring commenced an action in the Virginia Circuit Court (the Collateral Action), seeking to void the Deficiency Judgment based on the claim that the UBS Settlement constituted satisfaction of the Lee Hall Loan and relieved him of his responsibility to pay the Deficiency Judgment. On May 31, 2006, the Virginia Circuit Court dismissed Cimerring's suit and entered final judgment providing, among other things, that the UBS Settlement did not constitute or operate as payment on the Lee Hall Loan or reduce, discharge or release the obligation to repay the debt under the Lee Hall Loan (the Second Virginia Judgment). The Virginia Circuit Court also found that Cimerring's allegations that the Deficiency Judgment was obtained by fraud were meritless and failed to state a cause of action. Cimerring appealed the Second Virginia Judgment, which was affirmed by the Virginia Supreme Court in September 2007.
Collection Proceedings by ORIX on Behalf of the Trust
In April 2006, ORIX, on behalf of the Trust, filed an action in Louisiana state court against plaintiffs and various corporate entities allegedly owned by Cimerring (the Cimerring companies) to collect on the Deficiency Judgment. The Cimerring companies thereafter filed consolidated Chapter 11 bankruptcy cases in the Western District of Louisiana in July 2006, and the state court litigation was stayed. The bankruptcy court in Louisiana held, among other things, that plaintiffs were not entitled to a credit against the Deficiency Judgment for the UBS Settlement, but gave plaintiffs credit for the proceeds of the foreclosure on the mortgaged property (the Bankruptcy Judgment). The bankruptcy court also found that Cimerring's arguments were barred under res judicata, by the Virginia Circuit Court's prior judgment. Cimerring appealed the Bankruptcy Judgment to the United States District Court and Fifth Circuit Court of Appeals, the latter of which affirmed the lower courts' rulings that the doctrine of res judicata barred Cimerring's lawsuit subsequent to the Deficiency Judgment.
ORIX also commenced proceedings in Israel to enforce the Deficiency Judgment against Cimerring. According to Defendants, after trial, the Israeli court also rejected Cimerring's arguments, finding that the UBS Settlement did not constitute payment on the Lee Hall Loan and that Cimerring was not entitled to any credit on the deficiency judgment.
The Proceeding Against Nizan and Cimerring's Subsequent Declaratory Judgment Action
Meanwhile, litigation on the same Note continued in the Virginia Circuit Court against Nizan, plaintiff's business partner, following the resolution of Nizan's own action for bankruptcy and the lifting of a stay on proceedings in February 2005. By decision dated September 14, 2007 in the lawsuit filed by Wells Fargo against Nizan, the Virginia Supreme Court ultimately held, among other things, that: (1) the Uniform Commercial Code did not prevent Nizan from asserting the equitable defense of double recovery; (2) the Trust's internal accounting allocation of proceeds from the UBS Settlement was not relevant to Nizan's defense of double recovery; and (3) Nizan was entitled to additional discovery concerning “repurchase” of the Lee Hall Loan and whether the Trust had recovered damages from the UBS Settlement of the same character as those sought from Nizan (Nizan v. Wells Fargo Bank Minnesota Nat'l Ass'n, 274 Va. 481 [2007] ).
One month after the Virginia Supreme Court's decision rendered against Nizan, Cimerring commenced another action in the Virginia Circuit Court in October 2007 (the Declaratory Judgment Action), asserting claims for estoppel and waiver, and seeking a declaratory judgment on the enforceability of the Deficiency Judgment and a credit for the full amount of the Deficiency Judgment. In his complaint therein, Cimerring alleged that, as a result of the UBS Settlement, Wells Fargo and/or the Trust were/was made whole and that any further payment toward the Deficiency Judgment would constitute a double recovery and windfall to Wells Fargo. By decision and order dated August 29, 2008, the Virginia Circuit Court dismissed Cimerring's complaint, finding that Cimerring's claims asserted in the Collateral Action, the bankruptcy action in Louisiana, and the action currently before the Virginia Circuit Court arose out of a “definable factual transaction”—the UBS Settlement. Similarly, the Virginia Circuit Court stated that, in each of the three cases, Cimerring sought a credit on the Deficiency Judgment based on the UBS Settlement, and the evidence necessary to establish his claims in the prior proceedings was the same as the evidence proffered in support of his declaratory judgment claim in the Declaratory Judgment Action. The Virginia Circuit Court concluded that Cimerring had previously litigated his current claims and issues in the prior Collateral Action, and that the Second Virginia Judgment barred Cimerring's declaratory judgment claim under principles of res judicata and collateral estoppel as a matter of fact and law.
Cimerring's estoppel and waiver claims were dismissed for failure to state a cause of action.
The Instant Action
Plaintiffs commenced this action on April 14, 2011, seeking, among other things, a declaration that the Lee Hall Loan has been fully paid and the Guaranty fully satisfied. In the Complaint, plaintiffs assert a total of thirteen causes of action: (1) breach of contract under the Guaranty; (2) breach of implied covenant of good faith and fair dealing; (3) misrepresentation of Defendants' rights under the Guaranty; (4) negligence and gross negligence; (5) unjust enrichment; (6) frivolous conduct; (7) double recovery on the Lee Hall Loan; (8) judicial estoppel; (9) champerty; (10) violations of the PSA; (11) fraud; (12) abuse of process; and (13) declaratory judgment regarding the Guaranty's satisfaction. Underlying these claims are plaintiffs' allegations that ORIX's self-appointment as Special Servicer of the Trust created a conflict of interest, given its existing role as Master Servicer and because it owned a majority of certain certificates that gave them a controlling class position in the Trust.
THE PARTIES' CONTENTIONS
Defendants argue that the instant action must be dismissed because (1) Claims # 1 through 9 and 13 of the Complaint are barred by principles of res judicata and collateral estoppel because the issues herein were already litigated in and adjudicated by the Virginia Circuit Court in the Collateral Action, as well as by other jurisdictions; (2) Claims # 2 through 12 fail to state a cause of action; and (3) various causes of action in the Complaint are time-barred by the applicable statutes of limitation.
Citing Nizan v. Wells Fargo Bank Minnesota Nat'l Ass'n (274 Va. 481, 650 S.E.2d 497), plaintiffs first contend that they are not barred by res judicata, collateral estoppel, or any statute of limitations from seeking a judgment declaring that Defendants are barred by the equitable doctrine of double recovery from enforcing the Deficiency Judgment rendered in 2003 against plaintiffs. In this regard, plaintiffs assert that the issue of Defendants' recovery under the Note involves different definable factual transactions than plaintiff's liability under the Note, and that Defendants' recovery from any source, at any time, is relevant to assess whether their claim against plaintiffs is barred under Nizan, regardless of the validity of the deficiency judgment. They further aver that the issue of whether Defendants have fully recovered on the Note, which they claim is separate from the debtor's obligation to pay, has never been litigated. Moreover, plaintiffs assert that the various statutes of limitation cannot bar plaintiffs' causes of action as untimely because “every collection attempt by a creditor who has already fully recovered on a debt is a fresh wrongful act to [sic] which the defense of double recovery may be asserted.” Plaintiffs maintain that Defendants are barred by the equitable doctrine of double recovery from seeking to enforce the deficiency judgment because Defendants received payments on the Note (i.e., the UBS Settlement) in excess of the amount of the deficiency judgment and cannot further recover any sums because they have fully recovered the amount due on the Note.
In reply, Defendants ORIX, joined by the Trust and Wells Fargo, as trustee, assert that plaintiffs still fail to offer any legal authority that this New York court has the power to set aside or reduce a valid, final judgment of a sister state. They emphasize that plaintiffs have already attempted, and failed, to set aside the Deficiency Judgment, and cannot bring a declaratory judgment action in New York to seek the same relief already rejected by the Virginia courts, particularly when plaintiffs did in fact already argue its “double recovery” defense. Defendants also indicate that in October 2007, plaintiffs brought a declaratory judgment action in the Virginia Circuit Court based on Nizan, and that action was dismissed, by order dated August 29, 2008, on the ground of res judicata and collateral estoppel. They also maintain that, even if this court had the power to review the Deficiency Judgment, plaintiffs have not pled a sufficient basis for relief, such as some fraud, accident or mistake that prevented him from claiming a defense of “double recovery” in the original Virginia deficiency action. Finally, Defendants note that plaintiffs appear to have abandoned all other causes of action but their claims for declaratory relief, unjust enrichment, “double recovery,” and judicial estoppel, and further contend that the “double recovery” defense provides no grounds for affirmative relief, that the unjust enrichment and judicial estoppel claims fail to state a cause of action, and that these claims are time barred by the relevant statutes of limitation.
In an additional memorandum of law, plaintiffs respond to this court's inquiry during oral argument regarding whether it has the jurisdiction to entertain the instant action by indicating that the Supreme Court is endowed with general original jurisdiction in law and equity, and original, unlimited, and unqualified jurisdiction. With respect to the parties' various dealings with New York State in order to establish personal and subject matter jurisdiction, plaintiffs highlight that the MLPA, which included purchase of the Lee Hall Loan, is governed under New York law according to its own terms; that UBS filed a separate lawsuit against ORIX in the Supreme Court, New York County; that UBS signed the papers for the UBS Settlement in New York; and that UBS is a New York entity with numerous offices in this state.
DISCUSSION
(A) Dismissal of Claims Nos. 1–9 and 13
Under Res Judicata and Collateral Estoppel
The court first turns to the Defendants' arguments that the instant action should be dismissed on grounds of res judicata and collateral estoppel. “The purpose of the Full Faith and Credit Clause [of the Federal Constitution] is to avoid conflicts between [s]tates in adjudicating the same matters” (Matter of Luna v. Dobson, 97 N.Y.2d 178, 182 [2001] ). In a practical sense, the Full Faith and Credit Clause is intended to “avoid[ ] relitigation of issues in one State which have already been decided in another” ( id. at 182–183, 738 N.Y.S.2d 5, 763 N.E.2d 1146, quoting Matter of Farmland Dairies v. Barber, 65 N.Y.2d 51, 55 [1985],rearg. denied65 N.Y.2d 924 [1985] ). Under full faith and credit, “a judgment of a state court should have the same credit, validity, and effect, in every other court of the United States, which it had in the state where it was pronounced” (O'Connell v. Corcoran, 1 N.Y.3d 179, 184 [2003], quoting Underwriters Natl Assur. Co. v. North Carolina Life & Acc. Health Ins. Guar. Assn., 455 U.S. 691, 704 [1982];Matter of Bennett, 84 A.D.3d 1365, 1367 [2011],lv denied19 N.Y.3d, 801 [2012] ). Courts are thus required to recognize the prior out-of-state judgments of sister states, giving them the same preclusive effect under res judicata principles that those states would give under their own law (Luna, 97 N.Y.2d at 182–183, 738 N.Y.S.2d 5, 763 N.E.2d 1146). “Such clause is not implicated where the issue decided by a court in a sister state is different from the issue being decided by a New York court” (Matter of Doe v. O'Donnell, 86 A.D.3d 238, 243 [2011],lv denied17 N.Y.3d 713 [2011], quoting Matter of Whitney, 57 A.D.3d 1142, 1144 [2008] ).
(i)
Under Virginia law, to prevail upon a plea of res judicata, a party is required to establish four elements: (1) identity of the remedies sought; (2) identity of the cause of action; (3) identity of the parties; and (4) identity of the quality of the persons for or against whom the claim is made ( see Gunter v. Martin, 281 Va. 642, 645, 708 S.E.2d 875 [Sup Ct 2011] ). The failure to establish any one element is fatal ( id.). Furthermore, res judicata “bars relitigation of the same cause of action, or any part thereof which could have been litigated between the same parties and their privies.” (Lowes of Christianburg v. Clem, 37 Va.App. 315, 322, 557 S.E.2d 745 [Ct App 2002], quoting K & L Trucking Co. v. Thurber, 1 Va.App. 213, 219, 337 S.E.2d 299 [Ct App 1985] ). “It is firmly established that the party who asserts the defenses of res judicata or collateral estoppel has the burden of proving by a preponderance of the evidence that the claim or issue is precluded by a prior judgment” (Scales v. Lewis, 261 Va. 379, 383, 541 S.E.2d 899 [Sup Ct 2001];see also Wright v. Eckhardt, 267 Va. 24, 26, 591 S.E.2d 668 [Sup Ct 2004] ).
In determining whether two causes of action are the same for the purposes of res judicata, courts will look to whether they “arise out of the same definable factual transaction” (Davis v. Marshall Homes, Inc., 265 Va. 159, 171, 576 S.E.2d 504 [Sup Ct 2003], citing Allstar Towing, Inc. v. City of Alexandria, 231 Va. 421, 425 [1986] [adopting the definition of “cause of action” as “an assertion of particular legal rights which have arisen out of a definable factual transaction”] ). “The present trend is to see [a] claim in factual terms and to make it coterminous with the transaction regardless of the number of substantive theories, or variant forms of relief flowing from those theories.... The transaction is the basis of the litigative unit or entity which may not be split” (Restatement of Judgments [Second] § 24[1], Comment a ). “[T]he test to determine whether claims are part of a single cause of action is whether the same evidence is necessary to prove each claim” (Davis, 265 Va. at 171, 576 S.E.2d 504, quoting Brown v. Haley, 233 Va. 210, 216, 355 S.E.2d 563 [Sup Ct 1987] ).
Additionally, under the doctrine of collateral estoppel, prior judgments are afforded “preclusive effect ... based upon a collateral and different cause of action [in which] the parties to the first action and their privies are precluded from litigating any issue of fact actually litigated and essential to a valid and final personal judgment in the first action” (Lofton Ridge, LLC v. Norfolk Southern Ry. Co., 268 Va. 377, 381, 601 S.E.2d 648 [Sup Ct 2004], citing Bates v. Devers, 214 Va. 667, 671, 202 S.E.2d 917 [Sup Ct 1974] ). In proving collateral estoppel, a party must demonstrate five elements: (1) the parties to the two proceedings must be the same or in privity; (2) the prior proceeding must have resulted in a valid and final judgment against the party against whom preclusion is sought or his privy; (3) the factual issue to be precluded must have been actually litigated in the prior proceeding; (4) the factual issue to be precluded must have been essential to the judgment in the prior proceeding; and (5) there must be mutuality, “that is, a party is generally prevented from invoking the preclusive force of a judgment unless that party would have been bound had the prior litigation of the issue reached the opposite result” ( see TransDulles Center, Inc. v. Sharma, 252 Va. 20, 22–23, 472 S.E.2d 274 [Sup Ct 1996] ). For an issue to be considered to have been actually litigated, it is sufficient if evidence was presented on the issue in the prior proceeding ( see Id. at 24, 472 S.E.2d 274).
(ii)
In the instant action, there is no dispute that the “identity of the parties/privies” and “identity of the persons for or against whom the claim is made” elements for res judicata have been met in assessing whether the Virginia Circuit Court's Second Virginia Judgment in the Collateral Action bars this action. Rather, plaintiffs challenge only whether Defendants have satisfied the requirements that the remedies and causes of action be the same in order for res judicata to apply. Applying the relevant law to the facts, the court concludes that the doctrine of res judicata indeed applies to bar plaintiffs from maintaining this New York action against Defendants.
In this regard, the court finds that the causes of action in this action and in the Collateral Action indeed arise out of the same definable factual transaction. In the Collateral Action, the Virginia Circuit Court sustained Wells Fargo's demurrer, stating that:
“the treatment of the UBS settlement as allocable to the Lee Hall Loan would not, as a matter of law (a) constitute or operate as a payment on the Lee Hall Loan or a credit against the amount due on the Lee Hall Loan; (b) reduce, discharge, release or otherwise affect the obligations due under the Note, Guaranty or other Loan Documents; (c) discharge, release, reduce or otherwise affect Cimerring's obligation as Guarantor to repay the entire amount due under the Lee Hall Loan; or (d) constitute or operate as a double recovery.”
The Virginia Circuit Court thus unequivocally concluded that Cimerring, the plaintiff therein, failed to state a cause of action or grounds for relief based on the claim that the UBS Settlement constituted a satisfaction of the Lee Hall Loan. The Second Virginia Judgment was affirmed by the Virginia Supreme Court, thereby making that judgment final. In this action, focusing on plaintiffs' declaratory judgment claim (Claim # 13), for example, this court's determination also necessarily concerns the UBS Settlement. Insofar as plaintiffs assert in the Complaint that they are:
“entitled to a declaratory judgment that (1) the Guaranty and the obligations thereunder have been fully discharged, (2) that the Guaranty and the obligations thereunder are moot as the Lee Hall Loan has been fully paid, (3) that the Guaranty and the obligations thereunder are invalid and unenforceable as against [plaintiffs] or against any other person or entity, (4) that the Virginia deficiency judgment against [Cimerring] is moot, invalid and unenforceable as against [plaintiffs] or against any other person or entity, (5) that the various legal proceedings continued or commenced in the United States and Israel against [plaintiffs] be deemed unwarranted and order that such legal proceedings be discontinued with prejudice[,]”
the court finds that such cause of action is identical to those in the Collateral Action because they arise out of the same definable factual transaction: the UBS Settlement. Similarly, the claims Cimerring asserted in the bankruptcy action in Louisiana were based on the UBS Settlement as well. In both prior actions as well as this one, the crux of the lawsuit is the UBS Settlement, without which none of these actions would have been commenced. Likewise, despite their attempts to stylize the relief sought herein as distinct, plaintiffs effectively seek the same relief under the claims in the prior actions: to wit, a credit against the Deficiency Judgment based on the UBS Settlement. The relief plaintiffs seek here in Claim # 13—a purported offset—could not be awarded without the proceeds from the UBS Settlement.
Although plaintiff maintains that the satisfaction of debt claims in the Collateral Action are different from the double recovery-based claims asserted herein, the court finds these contentions unavailing. Relying heavily on Nizan (274 Va. 481, 650 S.E.2d 497), plaintiffs attempt to argue that the court therein distinguished between a cause of action for the discharge of plaintiffs' debt versus defendant being barred from a double recovery. However, the Virginia Circuit Court in Nizan simply differentiated various allegations by Nizan that either were or were not relevant to warrant further discovery in support of a double recovery defense. Moreover, even if the court had made such a distinction, it is irrelevant for purposes of a res judicata analysis because both claims nevertheless arise from the same definable factual transaction and res judicata still bars any claims that could have been brought in the prior action, thereby preventing parties from splitting a cause of action ( see Waterfront Marine Constr., Inc. v. North End 49ers Sandbridge Bulkhead Groups A, B and C, 251 Va. 417, 434, 468 S.E.2d 894 [Sup Ct 1996] ).
To the extent plaintiffs argue that the Second Virginia Judgment dismissing Cimerring's claims was based solely on UBS's internal accounting of the settlement proceeds, and that, in contrast, relief should be granted in the present action because their claim herein relies on the “repurchased” nature of the Lee Hall Loan, the court also finds such argument meritless. In this regard, the court notes that the Virginia Circuit Court rejected this very premise in the Declaratory Judgment Action, which was affirmed by the Virginia Supreme Court. In that lawsuit as well, the court found that there was an identity of causes of action between the claims asserted in the Collateral Action and the bankruptcy action in Louisiana, and the declaratory judgment claim Cimerring asserted in the Declaratory Judgment Action (which was based on the “repurchase price” of the loans sold by UBS), because they all arose out of a single definable factual transaction and the evidence necessary to establish Cimerring's claims in the prior proceedings was the same as that being proffered in the Declaratory Judgment Action. As the Virginia Circuit Court stated, “Cimerring has merely placed a different title on his claim of entitlement to a credit on the [Deficiency] Judgment based on the doctrine of double recovery” ( Cimerring v. Wells Fargo Bank Minnesota Natl Assoc. Trustee, etc., Petersburg Circuit Court, August 29, 2008, D'Alton Jr., J., Case No. C07–716, at 9), as he does in his Complaint in this action.
With respect to collateral estoppel, the court finds that this doctrine also bars Claim # 13 (declaratory judgment) in the instant action. Plaintiffs argue that they have not litigated, in any prior action, the issue of double recovery, that is, whether defendants are estopped from further enforcing the Note because the UBS Settlement constituted a payment on the Lee Hall Note. However, the Virginia Circuit Court's decision in the Collateral Action is conclusive regarding this matter. Indeed, as held in the Declaratory Judgment Action, the parties in the Collateral Action litigated the exact same issue of whether Cimerring is entitled to a credit on the Deficiency Judgment based on the UBS Settlement. Thus, the court's finding that this issue was actually litigated in a prior Virginia action is unavoidable.
In accordance with full faith and credit, the court is constrained to treat the prior judgments with the same “credit, validity, and effect” as they would have in their own state ( see O'Connell, 1 N.Y.3d 179, 770 N.Y.S.2d 673, 802 N.E.2d 1071;Matter of Bennett, 84 A.D.3d at 1367, 923 N.Y.S.2d 715). As the Virginia courts have already determined (1) that plaintiffs are not entitled to a credit against the Deficiency Judgment based on the UBS Settlement and (2) that the Collateral Action bars any declaratory judgment claims based on the UBS Settlement, this New York court is not inclined to disturb such prior judgments. Similarly, the court finds that many of plaintiffs' remaining claims must be dismissed on res judicata and collateral estoppel grounds because they are based on the premise that the Lee Hall Loan and/or Guaranty were or should have been discharged.
Thus, consistent with the public policy goal of reducing unnecessary litigation, the court concludes that Claims # 1–9 and 13 of plaintiffs' Complaint must be dismissed as barred under principles of res judicata and collateral estoppel ( see Davis, 265 Va. at 164, 576 S.E.2d 504).
Plaintiffs' Claims # 1 through 9 also cannot be maintained because they all rely on the UBS Settlement as the basis for a credit against the Deficiency Judgment. Specifically, Claim # 1 asserts that “Defendants [breached Cimerring's contractual rights under the Guaranty by] fail[ing] to treat the Lee Hall Loan as having been fully paid and ... [to] designate [the] personal guaranty as having been fully discharged.”
Claim # 2 asserts that “[defendants] breached the covenant of good faith and fair dealing by continuing and/or initiating the various legal proceedings ... despite the fact that the [Trust] received full payment on the Lee Hall Loan through [the UBS Settlement].”
Claim # 3 asserts that defendants misrepresented themselves by promising “[that they would not] seek collection [against Cimerring] should the debt be fully paid,” but nevertheless “continued litigation against [plaintiffs] to enforce the judgment ... even though the debt on the Lee Hall Loan had not been fully paid and the obligations under the guaranty have been fully executed and discharged.”
Claim # 4 asserts that “Defendants were reckless, careless, negligent and gross negligent in performing their duties as fiduciaries and/or parties to the alleged personal guaranty by [Cimerring], in failing to discontinue litigation against [plaintiffs] by attempting to collect additional payment on the Lee Hall Loan based on an unenforceable deficiency judgment, and by commencing additional litigation and collection activities in the United State [sic] and Israel to collect additional payments on the Lee Hall Loan based on an unenforceable judgment.
Claim # 5 asserts that “[defendants] would be unjustly enriched by the successful enforcement of a deficiency judgment against [Cimerring] when the debt on the Lee Hall Loan has been fully repaid .”
Claim # 6 asserts that, “[u]pon receipt of the [UBS Proceeds] ... [defendants] failed to treat the Lee Hall Loan as having been fully paid and failed to designate [the] personal guaranty as having been fully discharged ... and [acted frivolously, including by] misrepresenting Defendants' implied duties and responsibilities under the guaranty, [and] generating costs and expenses through litigation and enforcement of a guaranty and deficiency judgment that was based on a loan that was fully paid.”
Claim # 7 asserts that “[Defendants] failed to treat the Lee Hall Loan as having been fully paid and failed to designate [the] personal guaranty as having been fully discharged” and that “any additional amount recovered in connection with the Lee Hall Loan ... would amount to a double recovery on the underlying debt.”
Claim # 8 asserts that “all right and obligations of all parties, successors and assigns to the Guaranty have been fully discharged and it follows that, because there is no longer a deficiency in the amount owed on the Lee Hall Loan, the deficiency judgment against [Cimerring] is unenforceable and moot.”
Claim # 9 asserts that “even though all duties and responsibilities under the Lee Hall Loan and [Cimerring's] personal guaranty had been fully discharged through the various principal and interest payments received by [the Trust], [defendants], nevertheless, purposefully retained ownership in the Lee Hall Loan along with the right to sue [Cimerring] personally [and] obtained UBS's rights to sue depositors, borrowers and guarantors. UBS agreed to transfer its rights against loan originators, borrowers, and guarantors even though UBS knew that such rights were basically worthless as against Wexford, Lee Hall LLC, and [Cimerring].”
(B) Dismissal of Remaining Claims Nos. 10–12
The court must also dismiss the remaining three claims, numbers ten through twelve (violations of the PSA, fraud, and abuse of process, respectively), because they fail to state a cause of action. “On a motion to dismiss pursuant to CPLR 3211, the ... complaint is to be afforded a liberal construction. The facts as alleged in the ... complaint are accepted as true, the plaintiff is accorded the benefit of every possible favorable inference, and the court's function is to determine only whether the facts as alleged fit within any cognizable legal theory” (Goldfarb v. Schwartz, 26 A.D.3d 462, 463 [2006] );see also 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 152 [2002];Sokoloff v. Harriman Estates Dev. Corp., 96 N.Y.2d 409, 414 [2001];Leon v. Martinez, 84 N.Y.2d 83, 87–88 [1994] ). If, from the four corners of the complaint, factual allegations are discerned which, taken together, manifest any cause of action cognizable at law, a motion to dismiss will fail ( see 511 West 232nd Owners Corp., 98 N.Y.2d at 152, 746 N.Y.S.2d 131, 773 N.E.2d 496;Cooper v. 620 Prop. Assoc., 242 A.D.2d 359, 360 [1997] ). The court's function is to “accept ... each and every allegation forwarded by the plaintiff without expressing any opinion as to the plaintiff's ability ultimately to establish the truth of these averments before the trier of the facts” ( id., quoting 219 Broadway Corp. v. Alexander's, Inc., 46 N.Y.2d 506, 509 [1979] ).
(i)
As cited by plaintiffs in support of Claim # 10, Paragraph 11.05(c) of the PSA between ORIX, Wells Fargo, and the Trust provides:
“[n]o certificateholder shall have any right by virtue of any provision of this Agreement to institute any suit, action, or proceeding in equity or at law ... with respect to this Agreement or any Mortgage Loan, unless, with respect to any suit, action, or proceeding ... with respect to this Agreement, such Holder shall previously have given to the Trustee a written notice of default hereunder....”
According to plaintiffs, this provision thus provides that the Trust's certificateholders are prohibited from commencing any action or proceeding against borrowers and guarantors on loans held by the Trust directly. In the Complaint, plaintiffs allege that Defendants strategically decided to have Wells Fargo, as a Trustee on behalf of the certificateholders, commence all prior actions to collect the Deficiency Judgment in order to circumvent the prohibition in the PSA. Although the Complaint appears to allege that neither the Trustee nor special servicer is permitted to sue borrowers or guarantors on behalf of the Trust, even when plaintiffs' allegations are accepted as true, the PSA does not contain any such prohibition in the cited provision, and the PSA was not violated. Moreover, plaintiffs lack standing to allege a claim for breach of the PSA because they are not parties to this contract, nor do they allege that they are third-party beneficiaries to the agreement ( see Town of Oyster Bay v. Doremus, 94 A.D.3d 867, 869 [2012];Decolator, Cohen & DePrisco v. Lysagt, Lysagt & Kramer, 304 A.D.2d 86, 90 [2003] ). Thus, Claim # 10 must be dismissed for failure to state a cause of action under CPLR 3211(a)(7).
(ii)
Next, turning to the fraud claim (Claim # 11), Defendants argue that plaintiffs' allegations do not constitute an actionable claim for fraud because the Complaint does not allege any misrepresentation made by Defendants to plaintiffs, any intent by Defendants to defraud plaintiffs, nor any reasonable reliance by plaintiffs. In their Complaint, plaintiffs allege that “[Defendants] knew or should have known of the unlawful business practices” in which ORIX engaged, including “intentional[ly] signing and submi[tting] ambiguous affidavits and a power of attorney to Israel courts [to commence enforcement proceedings].” To recover damages for fraud, a plaintiff must prove: (1) a misrepresentation or an omission of material fact which was false and known to be false by the defendant; (2) that the misrepresentation was made for the purpose of inducing the plaintiff to rely upon it; (3) justifiable reliance by plaintiff on the misrepresentation or material omission; and (4) injury” (Jablonski v. Rapalje, 14 A.D.3d 484, 487 [2005] ). Moreover, under CPLR 3016(b), in any action based on fraud, plaintiff must detail the circumstances constituting the wrong in order to survive dismissal ( see Ozelkan v. Tyree Bros. Envtl. Servs., Inc., 29 A.D.3d 877, 879 [2006], citing CPLR 3211[a][7]; Colello v. Colello, 9 A.D.3d 855, 859 [2004],rearg. denied, lv. denied 11 NY3d 1053 [2004] ). “The particularity requirement of CPLR 3016(b) requires only that the misconduct complained of be set forth in sufficient detail to clearly inform a defendant with respect to the incidents complained of and is not to be interpreted so strictly as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud” (PDK Labs v. Krape, 277 A.D.2d 211, 211 [2000] [internal quotation marks and citation omitted] ).
Plaintiffs seemingly base the fraud claim on Defendants' alleged falsification of certain affidavits and a power of attorney giving local counsel in Israel authority to act on Wells Fargo's behalf in collecting the Deficiency Judgment against plaintiffs.
Specifically, they allege that the “ambiguous and unverified power of attorney signed by Jeffrey Yarakin purporting to authorize [local Israeli counsel] to act on Wells Fargo's behalf” was improper because he was an executive at ORIX at the time; that William Fay (Fay) signed an “undated, ambiguous, and unverified affidavit on Wells Fargo's behalf to purportedly give local counsel the same power,” but “Wells Fargo never personally had a claim against any of the parties involved in any Lee Hall Loan-related litigation;” that Elizabeth Brewster (Brewster) signed an ambiguous and unverified affidavit stating that Wells Fargo was acting as a Trustee, but that she purposefully failed to state on behalf of whom Wells Fargo was acting; and that Barry Schwartz of Wells Fargo knew and approved, or should have known that Fay and Brewster signed and submitted such false affidavits to the Israeli courts.
The court need not consider the parts of plaintiffs' fraud claim relating to Defendants' purported unlawful business practices of “misrepresenting Defendants' implied duties and responsibilities under the Guaranty” and “generating costs and expenses through litigation and enforcement of a guaranty and deficiency judgment that was based on a loan that was fully paid.” As those alleged wrongs are premised on the same definable factual transaction of a debt satisfied by the UBS Settlement, they are barred by res judicata and collateral estoppel.
However, aside from plaintiffs' conclusory assertions of unlawful business practices, plaintiffs present no facts from which a conclusion can be drawn that Defendants possessed the intent to defraud ( see Lang v. Warner, 121 A.D.2d 514, 514 [1986],lv denied69 N.Y.2d 601 [1986] ). The court also finds that, even when accepting the facts alleged as true, and according plaintiffs the benefit of every possible favorable inference ( see Leon v. Martinez, 84 N.Y.2d 83, 87 [1994] ), plaintiffs fail to sufficiently allege facts from which it could reasonably be found that plaintiffs justifiably relied on the alleged misrepresentations or that they were injured thereby (Glezelis v. Halkiopoulos, 61 A.D.3d 633, 633 [2009] ). In any event, the statute of limitations on a fraud claim is six years from the commission of the fraud, or two years from the time a plaintiff discovers or could have, with reasonable diligence, discovered the fraud, whichever is later ( see Coombs v. Jervier, 74 A.D.3d 724, 724 [2010];Quodrozzi Concrete Corp. v. Mastroianni, 56 A.D.2d 353, 355–356 [1977] ), and any cause of action that plaintiffs had would have expired in 2010, six years after Wells Fargo signed and/or submitted the alleged ambiguous or false affidavits to the Israeli courts in 2004. Thus, plaintiffs' fraud claim must be dismissed for both failure to state a claim and on statute of limitations grounds.
(iii)
Finally, the court finds that the abuse of process claim (Claim # 12) must be dismissed as well. Plaintiffs assert in the Complaint that Defendants maliciously misused the Deficiency Judgment to unlawfully obtain Cindy Cimerring's personal financial information from various banks and financial institutions in order to initiate enforcement proceedings against plaintiffs even though she was not a borrower or guarantor on the Lee Hall Loan. The elements of an abuse of process claim are: (1) regularly issued civil or criminal process; (2) an intent to do harm without excuse or justification; and (3) use of the process in a perverted manner to obtain a collateral objective ( see Curiano v. Suozzi, 63 N.Y.2d 113, 116 [1984];Fisk Bldg. Assoc. LLC v. Shimazaki II, Inc., 76 A.D.3d 468, 469 [2010];Panish v. Steinberg, 32 A.D.3d 383, 383 [2006] ).
The court finds that plaintiffs have failed to set forth a claim for abuse of process because they have failed to allege that Defendants engaged in any issue of process, which requires some “direction or demand that the person to whom it is directed ... perform or refrain from the doing of some prescribed act” (Julian J. Studley, Inc. v. Lefrak, 41 N.Y.2d 881, 884 [1977] [internal quotation marks and citation omitted] ) and further requires that the process be issued by or filed in a court ( see Senagryph Training Facilities v. Aristizabal, 2007 WL 2175416, 2007 N.Y. Slip Op 31744[U] [Sup Ct, Queens County 2007]; Nickerson v. Communication Workers of America Local 1171, 2005 WL 1331122, *8, 2005 U.S. Dist LEXIS 35496, *23 [NDNY 2005]; Varela v. Investors Ins. Holding Corp., 185 A.D.2d 309, 311 [1992] ). Thus, Defendants' purported malicious actions of obtaining Cindy Cimerring's financial information cannot be construed as an abuse of process. Similarly, Defendants did not abuse process merely by commencing lawsuits against plaintiffs (Alexsey v. Kelly, 205 A.D.2d 649, 649 [1994] [“the mere commencement of a judicial proceeding does not constitute abuse of process”]; Krause & Krause v. Gelman, 167 A.D.2d 299, 300 [1990] [“service of a summons and complaint or a counterclaim is not process' susceptible of tortious abuse, even if maliciously motivated”] ). Additionally, the statute of limitations on an abuse of process claim expired in July 2007, one year after Defendants commenced their last action against plaintiffs in Louisiana bankruptcy court in July 2006 ( see Beninati v. Nicotra, 239 A.D.2d 242, 242 [1997] ). Plaintiffs' abuse of process claim thus must be dismissed for failure to state a claim and as barred by the statute of limitations.
The court has considered the parties' remaining contentions and finds them meritless.
Accordingly, it is
ORDERED that Defendants' motion to dismiss is granted in its entirety.
The foregoing constitutes the decision, order, and judgment of the court.