Court Opinion

ID: 2815791
Source: CourtListenerOpinion
Date Created: 2015-07-09 14:28:52.40474+00
Date Added: 2024-06-11T11:30:37.365387
License: Public Domain

State of New York
                   Supreme Court, Appellate Division
                      Third Judicial Department
Decided and Entered: July 9, 2015                      520103
________________________________

WHITNEY LANE HOLDINGS, LLC,
                    Respondent,
      v                                     MEMORANDUM AND ORDER

DON REALTY, LLC, et al.,
                    Appellants.
________________________________

Calendar Date:   June 2, 2015

Before:   Peters, P.J., Lahtinen, Garry and Lynch, JJ.

                             __________

      E. Stewart Jones Hacker Murphy, Latham (David I. Iversen of
counsel), for appellants.

      Kim I. McHale & Associates, PC, New York City (Paul A. Burg
of counsel), for respondent.

                             __________

Garry, J.

      Appeal from an order of the Supreme Court (Ferradino, J.),
entered October 22, 2012 in Saratoga County, which denied
defendants' motion to dismiss the complaint.

      In November 2004, plaintiff purchased commercial property
in the Town of Clifton Park, Saratoga County from defendants Don
Realty, LLC, Donovan Littlefield and Arrianna Littlefield
(hereinafter collectively referred to as defendants).1 Plaintiff

    1
        The Littlefields, who were minors, acted through their
guardian, Matthew J. Sgambettera, in the real estate transaction,
and were subsequently sued through the guardian in this
litigation.
                              -2-                520103

received a warranty deed for the property in exchange for a cash
payment of approximately $1 million and a $3.55 million
promissory note for the benefit of defendant DDA & A Realty, LLC,
which was secured by a purchase money mortgage of the property.
In September 2006, DDA & A assigned the mortgage to DLL Family
Limited Partnership and, in June 2007, DLL assigned the mortgage
to OSJ of Clifton Park, LLC.

      Meanwhile, several months after plaintiff purchased the
property, the Town commenced an action to acquire a portion of
the property by eminent domain. In August 2005, this property
was granted to the Town. In November 2006, plaintiff commenced
this fraud action against defendants and DDA & A alleging that
defendants knew that the Town intended to commence the eminent
domain action when they sold the property to plaintiff, but
intentionally misrepresented that there was no such plan, and
that the taking had interfered with its commercial use of the
property and thus resulted in damages to plaintiff. Immediately
after commencing this action, plaintiff defaulted on the mortgage
by failing to make a balloon payment, and DLL commenced a
foreclosure proceeding. Supreme Court later joined this action
with the foreclosure proceeding for trial, but did not
consolidate the actions. After the June 2007 mortgage
assignment, OSJ was added to the action as a defendant.

      Plaintiff filed for bankruptcy. In December 2010, a
reorganization plan was approved, which directed that a new note
and mortgage be issued by plaintiff to OSJ, and required a
settlement and resolution of all claims between plaintiff and
OSJ. In March 2011, Supreme Court granted OSJ's unopposed motion
to dismiss the complaint against it in this action, with
prejudice. Defendants and DDA & A then moved to dismiss the
complaint in this action against them, contending that OSJ was
the only liable party as a result of the mortgage assignments and
that, due to the dismissal of the complaint against OSJ, res
judicata barred plaintiff from recovering against defendants.
The motion was denied. Defendants and DDA & A appeal.

      Supreme Court properly rejected the claim that OSJ is the
only liable party. It is true that, even after an assignment, a
mortgage remains subject to defenses existing between the
                              -3-                520103

original parties and that, when there is a claim of fraud or
misrepresentation in the procurement of a mortgage, "an assignee
of [the] mortgage takes it subject to the equities attending the
original transaction" (Lapis Enters. v International Blimpie
Corp., 84 AD2d 286, 291 [1981]). Here, however, plaintiff has
made no claim of fraud in the procurement of the mortgage or the
subsequent assignments; rather, the allegation is that the sale
of the underlying real property was procured through
misrepresentations by defendants. Defendants were not parties to
the mortgage, which was given by DDA & A, and DDA & A in turn was
not a party to the warranty deed or the purchase and sale
contract. It appears that Don Realty and DDA & A share at least
some common ownership, although these details are not clear from
the record. Nevertheless, the two limited liability corporations
are separate entities, and plaintiff has not claimed or shown
that they are so related to one another as to be alter egos (see
generally 14 NY Jur 2d, Business Relationships § 41). Further,
plaintiff has made no allegations of fraud or misrepresentation
against DDA & A or its assignees. Nothing in the record reveals
that anything other than the note and mortgage was assigned to
OSJ, or that defendants held or assigned a mortgage that could
have passed plaintiff's claims against them to OSJ. Thus,
although the assignments from DDA & A to DLL and from DLL to OSJ
passed rights and liabilities relating to DDA & A and the
mortgage to OSJ, they did not affect rights and liabilities
against defendants, and the settlement of plaintiff's claims
against OSJ arising from the mortgage had no effect upon
plaintiff's separate misrepresentation claim against defendants
arising from the purchase.

      The claims against defendants are not precluded by res
judicata, which "bars successive litigation based upon the same
transaction or series of connected transactions if: (i) there is
a judgment on the merits rendered by a court of competent
jurisdiction, and (ii) the party against whom the doctrine is
invoked was a party to the previous action [or proceeding], or in
privity with a party who was" (Matter of People v Applied Card
Sys., Inc., 11 NY3d 105, 122 [2008], cert denied 555 US 1136
[2009] [internal quotation marks and citation omitted]; accord
Matter of Starla D. v Jeremy E., 121 AD3d 1221, 1223 [2014], lv
denied 24 NY3d 914 [2015]). In determining whether privity
                              -4-                520103

exists, a court must analyze the relationship between the parties
to determine whether preclusion would be fair, and "[d]oubts
should be resolved against imposing preclusion to ensure that the
party to be bound can be considered to have had a full and fair
opportunity to litigate" (Buechel v Bain, 97 NY2d 295, 305
[2001], cert denied 535 US 1096 [2002]). Here, the record does
not reveal the nature of the relationship, if any, between
defendants and OSJ or the prior mortgage holders. It has not
been shown that defendants' interests were represented in the
proceedings involving OSJ, or that plaintiff's misrepresentation
claim against defendants could have been addressed in those
proceedings (see MLCFC 2007-9 ACR Master SPE, LLC v Camp
Waubeeka, LLC, 123 AD3d 1269, 1272-1273 [2014]; Comi v Breslin &
Breslin, 257 AD2d 754, 757-758 [1999]). Plaintiff's
misrepresentation claim does not arise from the mortgage-related
transactions that formed the basis of the settled claims against
OSJ (see Cora v Ranjan, 98 AD3d 598, 599-600 [2012]), and
plaintiff has not had the requisite "full and fair opportunity to
litigate" its misrepresentation claims against defendants
(Buechel v Bain, 97 NY2d at 305; see Huntington Natl. Bank v
Cornelius, 80 AD3d 245, 248-249 [2010], lv denied 16 NY3d 708
[2011]).

      Accordingly, Supreme Court properly rejected defendants'
claim that res judicata bars plaintiff from recovering against
them and, therefore, properly denied the motion to dismiss as to
defendants. However, because DDA & A was not a party to the
property sale and no allegations of fraud or misrepresentation
have been made against it, the motion to dismiss the complaint
against it should have been granted.

     Peters, P.J., Lahtinen and Lynch, JJ., concur.
                              -5-                  520103

      ORDERED that the order is modified, on the law, without
costs, by reversing so much thereof as denied defendants' motion
to dismiss the complaint against defendant DDA & A Realty, LLC;
motion granted to that extent and complaint dismissed against
said defendant; and, as so modified, affirmed.

                             ENTER:

                             Robert D. Mayberger
                             Clerk of the Court