This is an action to recover damages for fraud brought by an MBIA Insurance Corporation ("MBIA" or "Plaintiff"), the insurer of a mortgage securitization [*2]transaction against J.P.Morgan Securities LLC (f/ka Bear, Stearns & Co., Inc.) ("Defendant" or "Bear Stearns"), the underwriter of the transaction.
By Decision and Order dated and entered May 6, 2014 (the "May 2014 Decision"), this Court granted summary judgment to Bear Stearns on the sole cause of action asserted in Complaint — actual fraud — on the ground that there was no evidence to support the claim that MBIA relied upon the intentional misrepresentations made by Bear Stearns. However, in doing so, the Court acknowledged that unpleaded causes of action may be given consideration in opposition to summary judgment. This Court specifically determined that: (a) there was "at least some evidence in this record that would support a claim based on [Insurance Law] Section 3105" (May 2014 Decision at 34); and (b) "there is evidence that would suggest considerable merit to Plaintiff's unpleaded claim that Bear Stearns had a duty to disclose which it breached, giving rise to a claim for fraudulent concealment" (id. at 37 [footnote omitted]).
Because of the existence of potentially viable, though unpleaded, claims, the Court dismissed the extant Complaint with an explicit proviso — "provided, however, that said Plaintiff is granted leave to move, if it be so advised, within 20 days of the date hereof, to interpose an amended complaint asserting claims based upon Insurance Law Section 3105 and upon fraudulent concealment" (id. at 40).
Plaintiff has timely moved for leave to amend. Defendant has opposed the amendment. In resolving the motion, the Court assumes familiarity with the May 2014 Decision and incorporates that Decision by reference.
Leave to amend or supplement pleadings should be freely granted unless the amendment sought is palpably improper or insufficient as a matter of law, or unless prejudice and surprise directly result from the delay in seeking the amendment (McCaskey, Davies & Assocs., Inc. v New York City Health & Hosps. Corp., 59 NY2d 755, 757 [1983], citing CPLR 3025, subd [b]; Fahey v County of Ontario, 44 NY2d 934, 935 [1978]; see Maloney Carpentry, Inc. v Budnik, 37 AD3d 558 [2d Dept 2007]; Emilio v Robison Oil Corp., 28 AD3d 417 [2d Dept 2006]; Bolanowski v Trustees of Columbia Univ. in City of NY, 21 AD3d 340 [2d Dept 2005]; Luberda v Spameni, 303 AD2d 384 [2d Dept 2003]; Adams v Jamaica Hosp., 258 AD2d 604 [2d Dept 1999]; Nissenbaum v Ferazzoli, 171 AD2d 654 [2d Dept 1991]; Haven Assoc. v Donro Realty Corp., 96 AD2d 526 [2d Dept 1983]; Mosely v Baker, 59 AD2d 936 [2d Dept 1977]). The court has discretion in connection with such applications and the presumption is that leave should be granted "unless the proposed amendment would cause prejudice or surprise to the opposing party" (39 College Point Corp. v Transpac Capital Corp., 27 AD3d 454, 454 [2d Dept 2006]; see also Fahey, supra]).
The standard is more restrained where the motion for leave to amend is made long after the case has been certified for trial. In such event, judicial discretion in allowing amendments should be " discrete, circumspect, prudent and cautious'" and exercised sparingly (see, e.g., Alrose Oceanside, LLC v Mueller, 81 AD3d 574, 575 [2d Dept 2011], quoting Morris v Queens Long Island Med. Group, P.C., 49 AD3d 827, 828 [2d Dept 2008]).
Much of Defendant's opposition rests on the argument that amendment is precluded by res judicata.
Plaintiff contends that res judicata does not apply as no final judgment has yet been entered, the only judicial decree being the order granting Defendant summary judgment, subject to leave to Plaintiff to seek to replead. The Court adopts the view that an order entered resolving a contested summary judgment motion is entitled to res judicata effect, even if a formal judgment has not been entered on that order, as long as the other elements of res judicata are present (Vavolizza v Krieger, 33 NY2d 351, 356 [1974]; Siegel, New York Practice § 445 [5th ed 2011]).
The Court also assumes that the time to appeal the May 2014 Decision has expired without an appeal having been taken. Accordingly, res judicata attaches without regard to whether a judgment has been entered as yet.
There is no dispute that the grant of summary judgment, which is the procedural equivalent of a trial, results in a final judgment on the merits and bars another action between the same parties based upon the same cause of action (see, e.g., Collins v Bertram Yacht Corp., 42 NY2d 1033, 1034 [1977]). It is also axiomatic that, once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based on different theories (see, e.g., O'Brien v City of Syracuse, 54 NY2d 353, 357 [1981]; Keselman v City of New York, 95 AD3d 1278, 1279 [2d Dept 2012], lv denied 20 NY3d 856 [2013]).
Thus, it cannot be doubted that MBIA is precluded from suing Bear Stearns again — outside of this action — on claims arising from the 2006-HE4 Securitization, no matter what theory is asserted.
It also seems obvious that Bear Stearns could not detour around res judicata by moving to amend its pleading after summary judgment was granted dismissing that pleading and without the court having granted it leave to replead or leave to seek to replead as a part of the summary judgment determination (see Hanover Ins. Co. v Carley, 234 AD2d 268 [2d Dept 1996]; Keller v Kruger, 2013 NY Slip Op 51572[U], 41 Misc 3d 1204[A] [Sup Ct, Kings County 2013 [Battaglia, J.]). Bear [*3]Stearns' position is, however, broader. It contends that the grant of summary judgment on the pleaded cause of action precludes the assertion now of the unpleaded claims, even though the Court recognized the viability of the unpleaded claims in its review of the parties' summary judgment submissions. The Court does not agree.
As noted in the May 2014 Decision, unpleaded causes of action may be considered on summary judgment, " so long as plaintiff may in a proper case be permitted to amend its complaint to allege the cause of action proved in its submissions ....'" (id at 32, quoting Alvord and Swift v Stewart M. Muller Constr. Co., 46 NY2d 276, 281 [1978] [Breitel, Ch. J.]).
Had, at the time of Bear Stearns' summary judgment motion, MBIA actually moved, or cross-moved, for leave to amend its complaint so as to interpose the two unpleaded claims now at issue, the Court, if it granted the amendment, could have denied the motion for summary judgment as premature, given that Defendant would not have as yet joined issue with the service of a pleading responding to the amended complaint (see Organek v Harris, 90 AD3d 1512 [4th Dept 2011]). In the absence of such a motion, however, the Court perceived then, and still perceives, that it had two viable options.
There are cases in which courts, including the Appellate Divisions, have granted summary judgment to defendant while simultaneously and sua sponte granting plaintiff leave to serve an amended complaint asserting the viable, but hitherto unpleaded, claim presented in opposition to summary judgment (see, e.g., J.R. Adirondack Enter., Inc. v Hartford Cas. Ins. Co., 292 AD2d 771 [4th Dept 2002]; Wolfson v Mandell, 13 AD2d 760 [1st Dept 1961], affd 11 NY2d 704 [1962]; Bright v O'Neill, 3 AD2d 729 [2d Dept 1957]; see also Pomeranz v Dineen, 114 AD2d 944 [2d Dept 1985]). This approach has disadvantages: (a) it involves the granting of a motion to serve an amended pleading without first requiring the plaintiff to provide a proposed amendment (see CPLR 3025[b]); Branch v Abraham and Strauss Dept. Store, 220 AD2d 474 [2d Dept 1995]); and (b) it deprives the defendant of an opportunity to be heard on the issue as to whether to allow the amendment. As to the latter point, and apart from the merit of the proposed amendment, the defendant is entitled to an opportunity to present relevant facts and circumstances on the issue of whether allowing the amendment would cause cognizable prejudice.
There are numerous cases, including many from the Appellate Divisions, in which the courts have done what this Court did, i.e., grant summary judgment to the defendant on the pleaded cause of action but grant leave to the plaintiff to apply for leave to serve an amended complaint (see, e.g., Bennardi & Assoc., Inc. v Ramsons One, Inc., 8 AD3d 948 [3d Dept 2004]; Harrington v City of Plattsburgh, 216 AD2d 724 [3d Dept 1995]; Raymond Babtkis Assoc., Inc. v Tarazi Realty Corp., 34 AD2d 754 [1st Dept 1970]; Irving Finance Corp. v Wegener, 30 AD2d 958 [1st Dept 1968]). By pursing this course of action, whether to allow an amendment can be decided in light of [*4]the proposed pleading with both parties having a full and fair opportunity to address all relevant issues, including the issue of prejudice. In this regard, this Court was sensitive to the fact that Bear Stearns' only opportunity to address the unpleaded claims in this case was in its reply papers and, therefore, may not have had a full opportunity to address the viability of the unpleaded claims and to address whether there would be cognizable prejudice to an amendment (that Plaintiff had not specifically requested).
To accept Defendant's res judicata contention, it would have to be concluded that the cited appellate authorities invited an idle, precluded application, particularly since in each of them, as in this case, the courts, in granting summary judgment, recognized potentially viable claims and reserved them as fit subjects of continued litigation. Moreover, it would effectively penalize Plaintiff for the Court's decision to give Defendant the opportunity to be heard on the issue of the amendment, instead of the Court just having granted leave to amend sua sponte. Defendant's position would also render entirely superfluous the Court of Appeals' ruling in Alvord and Swift v Stewart M. Muller Constr. Co., supra, which specifically endorsed the process of allowing an unpleaded claim, found meritorious on summary judgment, to be asserted via an amendment. This Court cannot conclude that these authorities contemplated a doomed and idle exercise or that the distinguished judges who participated in the cited decisions, including the then Chief Judge who authorized the Alvord and Swift decision, were unmindful of res judicata principles.
In that regard, it is a recognized res judicata principle that it is inequitable to preclude a party from asserting a claim based res judicata where the court, in the first proceeding, expressly reserved the plaintiff's right to pursue a later or continued litigation (see Landau v LaRossa, Mitchell & Ross, 11 NY3d 8, 14 [2008]; 1626 Second Ave. LLC v Salsberg, 105 AD3d 432 [1st Dept 2013]; see also Breslin Realty Dev. Corp. v Shaw, 72 AD3d 258 [2d Dept 2010]). Here, the May 2014 Decision expressly reserved two unpleaded claims for future litigation and, as result, res judicata does not bar the Court from entertaining them. Stated another way, while the Court must give res judicata effect to its grant of summary judgment, it may not give it broader effect than its determination reflects (see Siegel, New York Practice §287 [5th ed 2011]). While the Court granted summary judgment to Defendant on the pleaded claim, and that claim is now precluded, the Court simultaneously reserved for future litigation the two unpleaded claims, which are, therefore, not precluded.
The Court further notes that the May 2014 Decision explained that the granting of summary judgment to Defendant was "without prejudice" to a motion by Plaintiff to interpose an Amended Complaint (May 2014 Decision at 3). Thus, the May 2014 Decision left alive, and viable for later litigation, the two unpleaded causes of action (see Maurischat v County of Nassau, 81 AD3d 793 [2d Dept 2011]; Holley by Holley v Mandate Realty Corp., 121 AD2d 202 [1st Dept 1986], affd 69 NY2d 721 [1987]].
This discussion would be sufficient but for two appellate decisions cited by Defendant which appear, on the surface, to support Defendant's position.
The first case to be considered is Buckley & Co. v City of New York (121 AD2d 933 [1st Dept 1986], lv dismissed 69 NY2d 742 [1987]). There, the Supreme Court entered an order granting summary judgment as to the third and fourth causes of action and dismissing those causes of action, while, in the same breath, granting "leave to plaintiff, upon a factual showing of merit, to replead" (Order entered December 4, 1984 at 2, annexed as Exhibit 1 to Affirmation of Marc L. Greenwald, Esq. dated July 21, 2014 ["Reply Aff."]). On appeal, the Appellate Division held that it was proper to grant summary judgment to defendant on the two causes of action but error to sua sponte allow plaintiff to replead the same two causes of action that had just been dismissed. The First Department's rationale is instructive:
A motion for summary judgment does not direct the court's attention to the sufficiency of the pleading, but rather to the factual basis for the action or defense .... Once a court has granted or denied a summary judgment motion based on the facts adduced before it, the matter is res judicata ....; new life may not be breathed into it through permissive repleading, even upon a showing of merit. The time to demonstrate the merit of an action or defense challenged on a motion for summary judgment is before the motion is decided .... The conclusive effect of a judgment on the merits may not be fatally undermined, as it was here, by allowing the party whose cause is dismissed a second chance to litigate the matter (Buckley & Co., supra 121 AD2d at 934-935).
It is evident that the Supreme Court in Buckley made two related errors. It granted summary judgment on two claims but allowed the very same claims to be repleaded. And it posited repleading upon a "factual showing of merit", though the factual showing of merit was the entire point of opposing summary judgment, i.e., if there was a time to show that there was factual merit to the claims, it was in opposition to summary judgment. It is obvious that a party cannot avoid having to lay bare its proof in its opposition to summary judgment by awaiting a later opportunity to seek to replead. Moreover, the test on summary judgment is not whether the plaintiff has pleaded a claim but whether there is evidence sufficient to warrant a trial on the pleaded claim. As the First Department put it, the time to demonstrate the merit of a claim challenged on a motion for summary judgment is before the motion is decided. While the unpleaded claims were not directly challenged on the motion, Plaintiff presented evidence as to their viability in opposition to the motion and the Court's decision on the motion included its determination that the unpleaded claims had sufficient viability to warrant allowing Plaintiff to seek to formally plead them.
The present circumstance is entirely different from Buckley. This Court did not, and will not, permit Plaintiff to again present the very cause of action previously dismissed. Moreover, the factual basis for the two unpleaded causes of action were [*5]presented in the opposition to the motion for summary judgment and found to be sufficiently meritorious to warrant granting Plaintiff the opportunity to seek to present them. This is not a case of breathing new life into a case that died; rather, the Court terminated only the pleaded cause of action while preserving the life of the two unpleaded claims.
The other case to be considered in Reznick v Tanen (162 AD2d 594 [2d Dept 1990]). There, the Supreme Court granted summary judgment dismissing all four causes of action but granted the plaintiff leave to replead. The Second Department reversed the order, stating:
On appeal, the plaintiff does not dispute that summary judgment dismissing the complaint was appropriate. However, the defendants correctly contend that it was error for the Supreme Court to grant the plaintiff leave to replead. The plaintiff's argument that the court could properly infer from the record that the plaintiff possessed an unpleaded cause of action for breach of the parties' stipulation of settlement of a prior action, and therefore, grant leave to replead, is without merit. Having granted summary judgment based on the facts before it, the Supreme Court was without authority to grant the plaintiff leave to replead (Reznick, supra 162 AD2d at 594, citing Buckley & Co., supra).