| Blue Sky, LLC v Jerry's Self Stor., LLC |
| 2016 NY Slip Op 08833 [145 AD3d 945] |
| December 28, 2016 |
| Appellate Division, Second Department |
[*1]
| Blue Sky, LLC, Respondent, v Jerry's SelfStorage, LLC, Appellant. |
Adam K. Kurland, P.C., New City, NY, for appellant.
Ansell, Grimm & Aaron, P.C., White Plains, NY (Joshua S. Bauchner ofcounsel), for respondent.
In an action to recover damages for breach of contract, conversion, unjustenrichment, and tortious interference with contract, the defendant appeals, as limited byits brief, from so much of an order of the Supreme Court, Rockland County (Berliner, J.),dated May 28, 2014, as denied that branch of its motion which was for summaryjudgment dismissing the complaint on the grounds of res judicata and collateralestoppel.
Ordered that the order is affirmed insofar as appealed from, with costs.
The plaintiff, Blue Sky, LLC (hereinafter Blue Sky), alleges that it loaned$1,690,000 to an entity known as FKF3, LLC (hereinafter FKF), which, in turn, loanedthat amount to the defendant, Jerry's Self Storage, LLC (hereinafter Jerry's). Blue Skyfurther alleged that as collateral for the loans, Jerry's assigned to FKF a mortgage oncertain real property. FKF made a partial assignment of the mortgage to Blue Sky.Mitchell Klein, John F. Magee, and Burton I. Dorfman were the three principals of FKF,and they also cumulatively held an 80% membership interest in Jerry's. As majorityinterest holders of Jerry's, they arranged for a refinancing of the mortgaged property,discharged the FKF mortgage lien, and did not repay the loans that Blue Sky had made toFKF. Based on these allegations, Blue Sky commenced this action against Jerry's torecover damages for breach of contract, conversion, unjust enrichment, and tortiousinterference with contract.
Jerry's moved, inter alia, for summary judgment dismissing the complaint on thegrounds of res judicata and collateral estoppel. In support of its motion, Jerry's submittedproof that Blue Sky and others had commenced a separate action against, among others,FKF, Klein, Magee, and Dorfman (hereinafter the FKF action), and that the complaint inthat action included the same allegations of wrongdoing against the three individuals asthe instant complaint alleges against Jerry's. Jerry's also submitted a jury verdict sheetfrom the FKF action, which found that Klein was liable to the plaintiffs based on afinding of fraud, but Magee was not. The Supreme Court denied [*2]that branch of Jerry's motion which was for summaryjudgment dismissing the complaint, finding that the defendant failed to demonstrate thateither doctrine barred the instant action. We affirm.
Under the doctrine of res judicata, a disposition on the merits bars litigation betweenthe same parties, or those in privity with them, of a cause of action arising out of thesame transaction or series of transactions as a cause of action that either was raised orcould have been raised in the prior proceeding (see Matter of Josey v Goord, 9 NY3d 386, 389 [2007]; Matter of Hunter, 4 NY3d260, 269 [2005]; O'Brien v City of Syracuse, 54 NY2d 353, 357 [1981];Gramatan Home Invs. Corp. v Lopez, 46 NY2d 481, 485 [1979]). "One linchpinof res judicata is an identity of parties actually litigating successive actions against eachother: the doctrine applies only when a claim between the parties has been previously'brought to a final conclusion' " (City of New York v Welsbach Elec. Corp., 9 NY3d 124,127 [2007] [emphasis omitted], quoting Parker v Blauvelt Volunteer Fire Co., 93NY2d 343, 347 [1999]). Here, it is undisputed that Jerry's was not a party to the FKFaction. Furthermore, Jerry's failed to demonstrate, as a matter of law, that it was in privitywith the defendants in the FKF action (cf. Green v Santa Fe Indus., 70 NY2d244, 253 [1987]; Matter of Shea, 309 NY 605, 616 [1956]).
We disagree with our dissenting colleague that the issue of privity is not in dispute.As the proponent of the summary judgment motion, Jerry's had the initial burden ofestablishing its prima facie entitlement to judgment as a matter of law (see Winegradv New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]). The moving papers did notaddress the issue of privity at all. While we agree with our dissenting colleague that theunderlying factual allegations in the instant action were part of the underlying factualallegations in the FKF action, we disagree that Jerry's has established that the issues offact and questions of law relating to its alleged liability in the instant action werenecessarily decided in the FKF action (see Gramatan Home Invs. Corp. v Lopez,46 NY2d at 485). In this regard, we note that the breach of contract cause of action in theFKF action was asserted against FKF and not the individual defendants. "When causes ofaction exist against several persons, the commencement of an action against one or moreindividuals does not constitute an election of remedies which bars an action against otherpotential defendants" (Abbott v Otis El. Co., 166 AD2d 470, 470 [1990]; seeCPLR 3002 [a]). Here, while the plaintiffs in the FKF action, which included BlueSky, could have asserted a direct claim against Jerry's in that action, res judicata isinapplicable "for the basic reason that the plaintiff never asserted any claim against thisdefendant. The fact that the plaintiff sued one tort-feasor does not automatically precludehim from suing another tort-feasor later" (Seaman v Fichet-Bauche N. Am., 176AD2d 793, 794-795 [1991]; seeAckman v Haberer, 111 AD3d 1378, 1379 [2013]; Farren v Lisogorsky, 87 AD3d713, 714 [2011]; Gillespiev Flight Line Pub, 2 AD3d 1014, 1015 [2003]). We disagree that the denial ofthe instant motion allows for inconsistent verdicts. Jerry's is the only defendant in theinstant action and it is undisputed that there is no determination on the merits as to itsliability, if any. The doctrine of res judicata does not serve as a bar to the instantaction.
Similarly, Jerry's failed to establish that the action is barred by collateral estoppel.This doctrine applies only "if the issue in the second action is identical to an issue whichwas raised, necessarily decided and material in the first action, and the plaintiff had a fulland fair opportunity to litigate the issue in the earlier action" (Parker v BlauveltVolunteer Fire Co., 93 NY2d at 349; see City of New York v Welsbach Elec.Corp., 9 NY3d at 128; Ryan v New York Tel. Co., 62 NY2d 494, 500-501[1984]). Since Jerry's was not a party to the prior litigation, its liability was not decidedtherein. Accordingly, the Supreme Court properly denied that branch of Jerry's motionwhich was for summary judgment dismissing the complaint on the grounds of resjudicata and collateral estoppel. Chambers, J.P., Dickerson and Brathwaite Nelson, JJ.,concur.
Duffy, J., dissents and votes to reverse the order insofar as appealed from, on thelaw, and grant that branch of the defendant's motion which was for summary judgmentdismissing the complaint, with the following memorandum: Under the facts of this case,the doctrines of res judicata and collateral estoppel bar the plaintiff, Blue Sky, LLC, fromre-litigating this action against the defendant, Jerry's Self Storage, LLC (hereinafterJerry's), and, thus, I disagree with my colleagues and vote to reverse the order insofar asappealed from and grant Jerry's motion for summary judgment dismissing thecomplaint.
[*3] Under the doctrine of resjudicata, a final disposition on the merits bars litigation between the same parties of allclaims which were or could have been litigated, arising out of the same transaction or outof the same or related facts, even if based upon a different theory or seeking a differentremedy (see O'Brien v City of Syracuse, 54 NY2d 353, 357 [1981]; Matter of City of New York vSchmitt, 50 AD3d 1032, 1033-1034 [2008]). "It is fundamental that a judgmentin a prior action is binding not only on the parties to that action, but on those in privitywith them" (Green v Santa Fe Indus., 70 NY2d 244, 253 [1987]). Generally, toestablish privity, the connection between the parties must be such that the interests of thenonparty can be said to have been represented in the prior proceeding (see id. at253).
Here, essentially the same claims, based on the same series of transactions, regardingthe same alleged acts by the same alleged individuals were litigated to conclusion. In thefirst action, the plaintiff (together with several other plaintiffs) filed a verified complaintagainst, as is relevant to this appeal, John Magee, Mitchell Klein, and Burton I. Dorfmanalleging, among other things, breach of contract, fraud, conversion, and unjustenrichment related to loans which were made to Jerry's and never repaid. The plaintiffalleged in its verified complaint in that first action, among other things, that "Magee,Klein and Dorfman became the majority interest holders and took control of Jerry's," thatthereafter, Magee arranged for a $5 million refinancing of Jerry's property, and that Kleinand Magee "intentionally failed to disclose to [the plaintiff] that Jerry's had borrowed$5,000,000 from Oritani Bank to refinance the original Jerry's $5,000,000 mortgage loanfrom FKF, which had previously been partially assigned to [the plaintiff]." Thatcomplaint also alleged that "[a]s the new managers of Jerry's," Klein and/or Mageeundertook certain acts which destroyed the plaintiff's collateral for funds that had beenloaned to Jerry's, that Jerry's had "an estimated value between $6 and $9 million; withMagee holding a 40% equity position that he obtained only by defrauding [the plaintiff],"and that because of "Magee's deception and self-dealing," the plaintiff was harmed while"Magee [controlled Jerry's] business operations [and retained] all or a substantial portionof the net proceeds from such operations." In that action, after the close of the plaintiffs'case, Dorfman's unopposed application to dismiss the complaint insofar as assertedagainst him was granted. Thereafter, a jury verdict was rendered in favor of the plaintiffand the other plaintiffs and against Klein on the fraud cause of action; Magee was foundnot liable.
The verified complaint in the instant action alleges that the plaintiff was harmed as aresult of acts undertaken by Magee and Klein "as majority interest holders exercisingcontrol over [Jerry's]." The complaint also alleges that "by virtue of Klein serving as. . . a controlling manager of [Jerry's], [Jerry's] knowingly, intentionally, anddeliberately failed to disclose to [the plaintiff] that it borrowed $5,500,000 from OritaniBank to refinance the original $5,500,000 mortgage from FKF." The complaint alsoalleges that "[Jerry's] permitted Klein and/or Magee to knowingly, intentionally, anddeliberately discharge the FKF mortgage lien . . . which had been partiallyassigned to [the plaintiff]." The allegations against Jerry's are virtually identical to thosealleged against the three individuals in the first action—breach of contract,conversion, unjust enrichment, and tortious interference with contract relating to theunpaid loans. More importantly, the plaintiff's verified allegations contend that theliability of Jerry's arises out of each of the same acts allegedly undertaken by those sameindividuals in the first action (see Bayer v City of New York, 115 AD3d 897, 899[2014]). As the acts allegedly undertaken by Klein and Magee through Jerry's werealready litigated to conclusion in the first action, res judicata bars relitigation of thosesame matters in this action as against Jerry's (see Toscano v 4B's Realty VIII Southampton Brick & Tile,LLC, 84 AD3d 780, 780-781 [2011]; see also O'Brien v City ofSyracuse, 54 NY2d at 357).
The equitable doctrine of collateral estoppel also bars the plaintiff from relitigating inthis action the acts already considered by the jury in the first action which were allegedlyundertaken by Klein and Magee on behalf of Jerry's. This doctrine, "so necessary toconserve judicial resources by discouraging redundant litigation, is grounded on thepremise that once a person has been afforded a full and fair opportunity to litigate aparticular issue, that person may not be permitted to do so again" (Gramatan HomeInvs. Corp. v Lopez, 46 NY2d 481, 485 [1979]). Only two requirements must besatisfied. First, the party seeking the benefit of collateral estoppel must prove that theidentical issue was necessarily decided in the prior action and is decisive in the presentaction (see D'Arata v New York Cent. Mut. Fire Ins. Co., 76 NY2d 659, 664-665[1990]), and second, the [*4]party or someone in privitywith the party had a full and fair opportunity to contest the prior determination (seeid. at 664-665).
The Court of Appeals, while noting that privity does not have a single well-definedmeaning (see Buechel v Bain, 97 NY2d 295 [2001]), has found that privityincludes " 'those who control an action although not formal parties to it, thosewhose interests are represented by a party to the action, and [those who are] coparties to aprior action' " (id. at 304, quoting Matter of Juan C. v Cortines,89 NY2d 659, 667 [1997]). "Generally, a nonparty to a prior litigation may becollaterally estopped by a determination in that litigation by having a relationship with aparty [in] the prior litigation such that his own rights or obligations in the subsequentproceeding are conditioned in one way or another on, or derivative of, the rights of theparty to the prior litigation" (D'Arata v New York Cent. Mut. Fire Ins. Co., 76NY2d at 664).
My colleagues' contention that Jerry's did not establish, as a matter of law, theexistence of privity between Jerry's and its principals ignores the fact that the issue ofprivity is not really in dispute. The plaintiff alleged in its complaint in this action thatKlein and Magee control Jerry's and are managers and interest holders and that Jerry's,through their acts, harmed the plaintiff. In fact, the plaintiff has argued that thedetermination of the jury in the first action as to Klein's liability for fraud entitles theplaintiff to summary judgment in this action on the issue of the liability of Jerry's for thatsame fraud. While that contention may have merit, the plaintiff did not seek such relief inthe Supreme Court and may not do so here (see Felicia v Boro Crescent Corp., 105 AD3d 697, 697-698[2013]).
Here, not only is there unity of interest between Jerry's and the individual defendantsagainst whom the first action was litigated, but the same alleged acts that were litigatedto conclusion are at issue. In this action, the plaintiff seeks to hold Jerry's liable for theacts Klein and Magee allegedly undertook as managers and shareholders of Jerry's at thebehest of Jerry's. As the plaintiff sought to hold Klein and Magee personally liable in thefirst action for those same acts they allegedly undertook as managers and shareholders ofJerry's, each had a vested interest in vigorously litigating the issue of whether or not eachundertook such alleged acts or whether such alleged acts ever occurred. Accordingly,Jerry's, through Klein and Magee in the first action, had a full and fair opportunity tocontest the prior determination.
The cases cited by the majority regarding the ability to sue one tortfeasor in a lateraction despite having sued a different tortfeasor in an earlier action are inapposite to thismatter as there was no privity between the tortfeasors in each of those actions (see Ackman v Haberer, 111AD3d 1378, 1379 [2013] [snowmobile passenger sued snowmobile operator afterearlier action against driver of the other snowmobile involved in the collision]; Farren v Lisogorsky, 87 AD3d713, 714 [2011] [no bar to plaintiff's suit against pharmacy's employee, afterplaintiff first settled a lawsuit against the pharmacy pursuant to a release which did notinclude the pharmacy's employees]; Gillespie v Flight Line Pub, 2 AD3d 1014, 1015 [2003][plaintiff's action against owners of bar not barred by plaintiff's earlier action againstdriver of vehicle involved in collision who had consumed alcoholic beverages at the bar,as issue of bar owners' culpability was not litigated in prior action against driver];Seaman v Fichet-Bauche N. Am., 176 AD2d 793, 794-795 [1991] [plaintiffpurchaser sued product manufacturer, after separate action against seller]; Abbott vOtis El. Co., 166 AD2d 470, 470 [1990] [where plaintiff did not add a party topending litigation but commenced new proceeding against entirely new defendant, noleave of court required]).
Here, all the causes of action asserted in the complaint against Jerry's were alreadylitigated in the prior proceeding against Magee, Klein, and Dorfman in their capacity asmanagers and controlling interest holders of Jerry's, and are therefore foreclosed by thedoctrines of res judicata (see Bayer v City of New York, 115 AD3d at 899;Toscano v 4B's Realty VIII Southampton Brick & Tile, LLC, 84 AD3d at781) and collateral estoppel (see D'Arata v New York Cent. Mut. Fire Ins. Co.,76 NY2d at 664-665).
Moreover, since the acts allegedly undertaken by Magee and Klein in their capacityas owners and managers of Jerry's were already considered and determined by the jury inthe first [*5]action when they reached their verdict thatKlein, but not Magee, was liable for fraud, the decision by my colleagues allows for (1)the plaintiff to relitigate those same facts and (2) the possibility of inconsistent findingsas to those already litigated facts. Thus, the interests of conservation of resources andsociety's interests in consistent and accurate results for courts and the litigants also favorbarring the plaintiff from relitigating these causes of action (see Staatsburg Water Co.v Staatsburg Fire Dist., 72 NY2d 147, 153 [1988]).
Accordingly, I would reverse the order of the Supreme Court insofar as appealedfrom and grant that branch of Jerry's motion which was for summary judgmentdismissing the complaint on the grounds of res judicata and collateral estoppel.