Opinion
3:99-CV-01892 (EBB)
August 2, 2000
RULING ON MOTION TO DISMISS INTRODUCTION
Defendants National Westminster Bank U.S.A. a/k/a/ Natwest ("NW"), Fleet Bank, ("Fleet"), and Midwest Financial Acceptance Corp. ("MWAC") or, collectively, the "Defendants", have filed a Motion to Dismiss the Amended Complaint on alternative grounds: firstly, the doctrine of res judicata and, secondly, by virtue of a prior pending action in the State Court. Defendants also move to dismiss the original complaint for lack of diversity, which ground has been rendered moot, as the non-diverse person has been dismissed from this case [Doc. No. 13, granted 2/28/00) and a review of an Amended Complaint [See Doc. No. 17.1, granted 3/2/00] reveals that prior Plaintiff Aldine Technologies no longer seeks relief from any of the Defendants herein.
STATEMENT OF FACTS
The Court sets forth only, those facts deemed necessary to an understanding of the issues raised in, and decision rendered on, this Motion. The facts are culled from the Amended Complaint, the parties' moving papers, and any exhibits thereto.
A complaint is deemed to include any written instrument attached to it as an exhibit or documents incorporated in it by reference. Cortec Indus. Inc.v. Sum Holding. L.P., 949 F.2d 42, 47 (2d cir. 1991), cert. denied, 503 U.S. 960 (1992). Moreover, when a plaintiff chooses not to attach or incorporate [documents] upon which it relies and which are integral to the complaint, a court may nevertheless take the documents into consideration in deciding the defendant's motion to dismiss, without converting the procedure to one for summary judgment. Id. at 47-48., cited by, International Audiotext Network. Inc. v. American Telephone and Telegraph Co., 62 F.3d 69, 72 (2d cir. 1995).
In a two-count Complaint made returnable on July 11, 1995, NW commenced an action in the Connecticut Superior Court entitledNational Westminster Bank (Midwest Financial Acceptance Corp. Substitute Party Plaintiff) v. Peter Gould et al., CV-95-0146155 (the "State Court Action"), in order to foreclose two mortgages, securing two notes on 429 Taconic Road in Greenwich, Connecticut, owned by Plaintiff Gould (the "Property"). The First Count was brought to foreclose a mortgage securing a promissory note, dated December 16, 1986, payable to NW in the original principal amount of $2,200,000.00 (the "Cherry Hill Note"). The Cherry Hill Note was made by Peter Gould and Peter Gould d/b/a/ Cherry Hill Development Company, ("Gould" and "CHDC" or, collectively, the "State Court Defendants"). The Cherry Hill Note and Mortgage was modified by Agreement, dated July 6, 1993, which set a maturity date of the Note as December 1, 1994.
The Second Coupt of the State Court Action was brought to foreclose another mortgage on the Property, junior to the mortgage sought to be foreclosed in the First Count. This mortgage secured a promissory note in favor of NW made by Aldine Technologies, Inc. ("Aldine") in the original principal amount of $1,292,000.00, dated March 31, 1993 (the "Aldine Note"). The Aldine Note was guaranteed by Gould and the mortgage that was the subject of the Second Count secured the guaranty by Gould of the Aldine Note. The Aldine Note matured, according to its terms, on December 31, 1994.
Defendants filed a counterclaim, seeking $10,000,000.00 from the State Court Action Plaintiffs. The State Court Defendants alleged that, in 1986, NW agreed that the Aldine Note would be repaid from the proceeds from the sale of the Property. The State Court Defendants also contended that the notes and mortgages had again been modified between 1993 and 1995 and that NW had breached that agreement. The State Court defendants further alleged that Gould was an officer of one Lensclean, Inc. and the proceeds of the sale of that company for $450,000.00 were assigned to NW, thus reducing the balance of the Aldine Note. They also claimed that Gould assigned to NW a note from Gould Paper Company for $850,000.00, which paid off the remainder of the Aldine Note but that "Natwest, in its fiduciary capacity, [sic] failed to pursue the collection of these two notes." In contradistinction to this State Court counterclaim allegation, Gould now asserts in this action that Flee: assigned the two subject promissory notes to Defendant MWAC.
In his counterclaim, Gould further alleged that by "fraudulently filing" the State Court Action, NW impaired Gould's "credit and reputation" and the "credit and reputation" of Cherry Hill. Additionally, the State Court Action allegedly diminished Gould's capacity to operate "other businesses".
The action was finally set for trial before an attorney trial referee (the "ATR"), on July 17, 1997 and ran for five days. The trial was completed on August 13, 1997. The ATR thereafter submitted his report, finding the following: (1) the $2,200,000.00 note executed in 1986 by Gould and Cherry Hill was in default and NW was the proper holder thereof; (2) this note provided, among other things, for late charges and for costs of collection, including attorneys' fees in the event of a default; (3) on March 31, 1993, Gould executed a guaranty of a note payable by Aldine to NW in the amount of $1,292,000.00; (4) the 1993 note and mortgage were due and payable on December 31, 1994, and were not paid when due; (5) $30,628.93 represented a reasonable attorneys' fee, including disbursements, for Fleet's counsel,; (6) the value of the Property was found to be $4,555,000.00 as of August 26, 1997; and (7) Gould and Cherry Hill failed to prove any allegations in their counterclaims.
Fleet, by virtue of a merger with NW effective May 1, 1996, became the present owner and holder of both mortgages.
Thus, the ATR found in favor of Fleet and recommended that both mortgages be foreclosed. As of July 15, 1997, the debt on the Cherry Hill Note was determined to be $1,950,000 of principal and $480,417.74 of interest, totaling $2,430,417.74, with per diem interest from that date to the date of judgment at $460.41667. The ATR also found that the value of the Aldine Note and Guaranty was $224,119.94 of principal and $215,693.15 of interest as of July 15, 1997, totaling $439,812.09, with per diem interest thereafter of $68.48079.
Following review of these decisions through appropriate procedure, see Conn.Prac.Bk § 19-12 (motion to correct report); § 19-13 (exceptions to referee's report) and § 19-14 (objections to Acceptance of Referee's Report), the ATR's report was affirmed by the Superior Court and a final judgment was entered thereby. Gould then filed an appeal to the Appellate Court. The Appellate Court affirmed the entrance of judgment in NW's favor and remanded the case for the purpose of setting a new sale date.National Westminster Bank v. Gould, et al., 55 Conn. App. 903 (1999). A petition for certification to the Supreme Court was denied. National Westminster Bank v. Gould et al., 252 Conn. 921 (2000).
This Federal Court action followed the Appellate Court's decision. This Court notes that the notes and mortgages in the State Court Action are the same notes and mortgages referred to in the present Amended Complaint (the "Federal Action").
The present claims are breach of contract and a violation of the Connecticut Unfair Trade Practices Act ("CUTPA"). Since the focus of Defendants' Motion to Dismiss is the doctrine of res judicata and the prior pending State Court Action, this Court must determine whether these claims are foreclosed by that State Court Action.
LEGAL ANALYSIS
I. The Standard of Review Federal Rule of Civil Procedure 12(b)(6)
A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) should be granted only if "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. Spalding, 467 U.S. 69, 73, (1984). "The function of a motion to dismiss is merely to assess the legal feasibility of a complaint, not to assay the weight of evidence which might be offered in support thereof." Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984) quoting Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980)
Pursuant to a Rule 12(b)(6) analysis, the Court takes all well-pleaded allegations as true, and all reasonable inferences are drawn and viewed in a light most favorable to the plaintiff. Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir. 1996). See also Conley v. Gibson, 355 U.S. 41, 45-46 (1957) (Federal Rules reject approach that pleading is a game of skill in which one misstep by counsel may be decisive of case). The proper test is whether the complaint, viewed in this manner, states any valid ground for relief. Conley, 355 U.S. at 45-46.
II. The Standard As Applied
A. The Doctrine of Res Judicata
The general rule of res judicata applies to repetitious suits involving the same cause of action. It rests upon considerations of economy of judicial time and public policy favoring the establishment of certainty in legal relations.Commissioner of Internal Revenue Service v. Sunnen, 333 U.S. 591, 597 (1947). "Simply put, the doctrine of res judicata provides that when a final judgment has been entered on the merits of a case `[i]t is a finality as to the claim or demand in controversy, concluding parties, and those in privity with them, not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.'" Nevada v. United States, 463 U.S. 110, 130 (1982), quoting Cromwell v. County of Sac., 94 U.S. 351, 352 (1877). The final judgment puts an end to the cause of action, which cannot be brought into litigation between the parties upon any ground whatsoever. Sunnen, 333 U.S. at 597. Accord Federated Dep't Stores, Inc. v. Mottie, 454 U.S. 394, 398 (1981); Saud v. Bank of New York (2d Cir. 1991); NLRB v. United Technologies Corp., 706 F.2d 1254, 1259 (2d Cir. 1983). See generally 1B J.Moore, J.Lucas T.Currier, Moore's Federal Practice ¶ 0.405 (2d ed. 1988). It is appropriate to determine whether a complaint is barred by res judicata on a Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b). Southard v. Southard, 305 F.2d 730, 732 n. 1. (2d Cir. 1962).
The requirement that the State Action be a final judgment on the merits is clearly met here. The Appellate Court affirmed the ATR's Report and ordered a sale date. A petition for certification to the Supreme Court was the final step the State Court Defendants could take, and their petition was denied. Thus, it is beyond cavil that the State Action came to final judgment in favor of the State Court Plaintiffs, the Defendants in this present Federal Action.
The Court must next turn to an analysis of the present action in order to determine if it is a subsequent cause of action on the same claim, keeping at the forefront that res judicata is a bar "not only as to every matter which was offered to sustain the claim, but also as to any other admissible evidence which might have been offered for that purpose." Meehan v. Town of East Lyme, 919 F. Supp. 80, 83 (D.Conn. 1996) (granting summary judgment on res judicata grounds). This is known as the "transaction test". In Anaconda-Ericsson, Inc. v. Hessen, 762 F.2d 185, 190 (2d Cir. 1985), the Second Circuit outlined the four-part test to be applied in determining whether a suit is to be precluded pursuant to the transaction test. "[T] his doctrine applies to preclude later litigation if the earlier decision was (1) a final judgment on the merits; (2) by a Court of competent jurisdiction; (3) in a case involving the same parties or their privies: and (4) involving the same cause of action."
Plaintiffs herein have established the first three factors. Hence, the only factor left to be determined is factor number four. In determining whether this fourth requirement is satisfied, the Second Circuit has held "that the test for deciding the sameness of the claims requires that the same transaction, evidence, and factual issues be involved." N.L.R.B. v. United Technologies Corp., 706 F.2d 1254, 1259 (2d Cir. 1983).
As noted above, the causes of action against the present Defendants are breach of contract and violation of CUTPA. The breach of contract is based on the pleaded assignment by Fleet to MFAC, allegedly in violation of a first right of refusal contained in the May 4, 1994, agreement between Gould and NW. Viewing this claim in the light most favorable to the present Plaintiffs, this is a viable cause of action, or evidence of said breach of contract. Accordingly, it should have been brought as part of the State Court Action or be barred herein. Res judicata acts as a bar to any claim which was actually offered to sustain or defeat a claim or demand, and also to any other admissible matter which might have been offered for that purpose. Nevada v. United States 463 U.S. 110, 130 (1982), citing Cromwell v. County of Sac., 94 U.S. 351, 352 (1887) (emphasis added). Accord Saylor v. Lindsley, 391 F.2d 965, 968 (2d Cir. 1968); State v. Ellis, 197 Conn. 436, 465 (1985), quoting 18 Wright, Miller Cooper, Federal Practice and Procedure, § 4406 at p. 45. (process of applying res judicata aimed at defining chose matters that "both might and should have been advanced in the first litigation") (emphasis in original).
Gould should have included this "right of first refusal breach of contract" claim as a separate count in his counterclaims, or, alternatively, offered it as evidence in defense of the action. Whether a factual grouping constitutes a single transaction is "to be determined pragmatically, giving weight to such considerations as whether the facts related in time, space, origin, or motivation, whether they form a convenient trial unit and whether their treatment as a unit conforms to the parties' expectations. . . ." Duhaime v. American Reserve Life Insurance Co., 200 Conn. 360, 364-65 (1986), quoting Restatement (Second) of Judgments (defining "original judgments"). "[A] plaintiff must raise all of the claims in a litigation; he simply cannot wait and get a second chance of litigating the same issues under different guises." Cohen v. Bane, 853 F. Supp. 620, 626 (E.D.N.Y. 1994).
There can be no argument that the claim of a "right of first refusal" involved the very issues at the heart of the State Court Action. The right allegedly existed from May of 1994, forward. If it existed, it should have been raised as a defense to Fleet's prosecution of the State Court Action or as evidence of Gould's counterclaims. The alleged assignment was prior in time to the State Court trial. The evidence thereof could have challenged Fleet's ability to foreclose the mortgages. It then could have been raised again as a defense to the substitution of MW as the Plaintiff in the State Court Action and then as a defense to Fleet's taking its judgment of foreclosure. This Court finds that Plaintiff herein is attempting to do just that "under a different guise." Accordingly, this Court finds that the alleged breach of contract claim in the Federal Action, based on the "right of first refusal", alleged to be a part of an agreement between NW k/n/a Fleet and Gould, should have been brought under the State Court breach of contract defense and/or counterclaims. Hence, res judicata bars the First Count of the present Federal Action Claim, for breach of contract arising from this right of first refusal.
So, too, the CUTPA claim is barred by the doctrine of res judicata. Incorporating by reference the first thirty-three paragraphs of the Federal Court Complaint, the CUTPA claim merely quotes the CUTPA statute and then bases the CUTPA claim on the State Court Defendants' ostensibly deliberate non-disclosure of the right of first refusal issue in the State Court Action. This is alleged to be a "fraud on the [State] Court . . . ." However, it was Gould's responsibility to raise such alleged right as a defense to the State Court Action, or to set forth the same in his counterclaims asserted therein. The responsibility lay with him, not the State Court Plaintiffs, again because the CUTPA allegations regarding the right of first refusal belonged as a defense or counterclaim in the State Court Action.
The RICO claim must be dismissed for complete non-compliance with the Standing Order in Civil RICO Cases of the Local Rules of Civil Procedure for the United States District Court, District of Connecticut. Completely absent is conformity with the twenty requirements and the fifteen subparts thereto, which detailed RICO Case Statement should have been filed within twenty days of filing the complaint. In the present case the mandated filing date was on or before March 22, 2000. Although it need not have done so, this Court has analyzed the facts in the State and Federal Actions as applied to the jurisprudence of RICO and finds that Plaintiffs could not meet the statutory requirements for such a cause of action to go forward.
CONCLUSION
For all of the foregoing reasons, Plaintiffs do not set forth any claim upon which relief may be granted and upon which they bear the burden at trial. The Motion to Dismiss [Doc. No. 8] is hereby GRANTED WITH PREJUDICE. Although a plaintiff is ordinarily allowed to replead his complaint following the granting of a motion to dismiss, to do so in this case would be futile, and the Court exercises its liberal discretion in finding so in this case. See, Foman v. Davis, 371 U.S. 178, 182 (1962).
SO ORDERED