Res Judicata Bars Action To Determine The Validity of a Refinancing Agreement

• Posted on: Apr 17 2023

By: Jeffrey M. Haber

Under the doctrine of res judicata, a final judgment on the merits of a claim precludes re-litigation of that claim by a party, and those in privity with that party.¹ This means that parties cannot relitigate the claim and all claims arising out of the same transaction, or series of transactions, even if based upon different theories or if seeking different remedies. It is a “transactional analysis” that the courts of New York apply to “preclude the litigation of matters that could have or should have been raised in a prior proceeding arising from the same ‘factual grouping.’”² Ultimately, application of res judicata requires the claim sought to be resolved to have been “reasonably and plainly comprehended to be within the scope” of the prior dispute.³ 

The doctrine of collateral estoppel prevents a party from relitigating an issue that was “raised, necessarily decided and material in the first action,” provided the party had a full and fair opportunity to litigate the issue.⁴ Collateral estoppel is an equitable defense “grounded in the facts and realities of a particular litigation, rather than rigid rules.”⁵ The proponent of collateral estoppel has the burden of demonstrating “the identicality and decisiveness of the issue,” while the opponent has the burden of establishing “the absence of a full and fair opportunity to litigate the issue in [the] prior action or proceeding.”⁶

To establish privity with respect to either res judicata or collateral estoppel, “the connection between the parties must be such that the interests of the nonparty can be said to have been represented in the prior proceeding”.⁷ Although relationship alone is not sufficient to support preclusion, “[privity] includes those who are successors to a property interest, those who control an action although not formal parties to it, and those whose interests are represented by a party to the action”.⁸ The party asserting the conclusive effect of a prior judgment has the burden to establish it.⁹ 

[Ed. Note: This Blog examined the doctrine of res judicata here, here and here.]

The doctrines of res judicata and collateral estoppel apply to prior arbitration proceedings, as well as prior determinations by state appellate and federal courts.¹¹ 

In New York, the Civil Practice Law and Rules (“CPLR”) specifically recognizes res judicata and collateral estoppel as bases for dismissal.¹² Both concepts are also affirmative defenses under the CPLR.¹³

In Brody v. RBC Mtge. Co., 2023 N.Y. Slip Op. 01883 (2d Dept. Apr. 12, 2023) (here), the Appellate Division, Second Department, had the opportunity to consider the foregoing principles.

Brody involved a quiet title action pursuant to Real Property Action and Proceedings Law Article 15, wherein Brody sought a declaration that mortgages held by the Bank of New York Mellon Corporation (“BNY”) encumbering the subject property were unenforceable and invalid. Brody commenced the action in August 2019.

Defendants Mortgage Electronic Registration Systems, Inc. (“MERS”), and NewRez, LLC, moved, and defendant BNY separately moved, pursuant to CPLR § 3211(a), to dismiss the complaint, asserting, among other things, that plaintiff’s claims were barred by the doctrine of res judicata. Defendants maintained that, inter alia, in April 2013, plaintiff commenced a proceeding pursuant to RPAPL 1921 against BNY and Countrywide Home Loans, Inc. (“Countrywide”) to cancel and discharge a note and mortgage securing certain real property located in Rye, N.Y. (the “prior proceeding”) on the grounds that, inter alia, it was procured by fraud. The prior proceeding centered on plaintiff’s claim that, in connection with a December 22, 2006 refinancing, a first note and mortgage on the property had been satisfied, and had not been consolidated with a second note and mortgage to form a new single debt. By order dated December 7, 2016, issued in the prior proceeding, the Supreme Court, among other things, granted BNY and Countrywide’s motion for summary judgment dismissing the prior proceeding finding that Brody had ratified the purportedly fraudulent mortgages by accepting the mortgage proceeds, signing the mortgage documents and making the mortgage payments without protest.

The motion court granted the motions to dismiss. The motion court found that the issue of the validity of the mortgage, which was the basis for plaintiff’s current complaint, was litigated in the prior proceeding. 

Brody’s complaint seeks a declaration that he is vested with absolute and unencumbered title to the Property which is based upon his allegation that the CEMA is, for various reasons, fraudulent and invalid. He alleges that the 2003 Mortgage is “defective on its face and unenforceable” and that the CEMA is in conflict with the 2003 Mortgage.

In light of the foregoing, it is indisputable in this context that res judicata bars Brody’s claims here. The claims clearly arise from the identical transaction at issue in the prior proceeding the consolidated loan transaction, and in particular the CEMA, — and involve the identical parties. The Court already determined that Brody ratified the Mortgages by accepting the mortgage proceeds, executing the loan documents and making payments thereon without protest and that the Mortgages are therefore enforceable and valid.

Plaintiff appealed.

The Second Department affirmed. 

The Court held that the issues in the current action and the prior proceeding concerned the same subject matter and, therefore, were already litigated. 

Here, the subject matter of the prior proceeding centered on the validity and terms of the December 2006 refinancing agreement. In the prior proceeding, the Supreme Court concluded that the plaintiff had ratified the refinancing agreement by making the new, higher payments “without protest,” and “accept[ing] the proceeds of the purportedly fraudulent loan and a written acknowledgment of the loan terms.” In this action, the plaintiff seeks an absolute and unencumbered title to the property, and alleges, among other things, fraud and unclean hands in connection with the refinancing agreement. Thus, the subject matter of both the prior proceeding and this action is the validity of that refinancing agreement.¹⁴

Therefore, concluded the Court, “the doctrine of res judicata preclude[d] the court’s reconsideration of that same transaction”.¹⁵ 

Takeaway

As discussed, the Second Department dismissed plaintiff’s claims because they were previously decided in the prior proceeding, wherein he sought to invalidate the subject mortgages on the basis of fraud. The prior proceeding was dismissed on summary judgment because plaintiff ratified the purportedly fraudulent mortgages by accepting the mortgage proceeds, signing the mortgage documents and making the mortgage payments without protest. Because the validity of the mortgages at issue in the action before the Second Department was previously established by the motion court in the prior proceeding, Brody’s claims were barred by the doctrine of res judicata.

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

References

1. E.g., O’Brien v. City of Syracuse, 54 N.Y.2d 353,357 (1981).
2. Board of Managers of Windridge Condos. One v. Horn, 234 A.D.2d 249 (2d Dept. 1996).
3. Kim v. NRT New York LLC, 198 A.D.3d 416, 416 (1st Dept. 2021).
4. E.g., Parker v. Blauvelt Volunteer Fire Co., 93 N.Y.2d 343, 349 (1999).
5. Buechel v. Bain, 97 N.Y.2d 295, 303 (2001).
6. Ryan v. New York Tel Co., 62 N.Y.2d 494, 501 (1984).
7. Green v. Santa Fe Indus., 70 N.Y.2d 244, 253 (1987); see also D’Arata v. New York Cent. Mut. Fire Ins. Co., 76 N.Y.2d 659, 664 (1990).
8. Watts v. Swiss Bank Corp., 27 N.Y.2d 270, 277 (1970).
9. Id. at 275.
10. Mahler v. Campagna, 60 A.D.3d 1009 (2d Dept. 2009); see also Rembrandt Ind. v. Hodges Intl., 38 N.Y.2d 502, 504 (1976); Lopez v. Parke Rose Mgt. Sys., 138 A.D.2d 575, 577 (2d Dept. 1988)
11. Milone v City University of New York, 153 A.D.3d 807, 808-809 (2d Dept. 2017); see also Emmons v Broome County, 180 A.D.3d 1213 (3d Dept. 2020).
12. See CPLR § 3211(a)(5).
13. See CPLR § 3018(b).
14. Slip Op. at *2.
15. Id. (citations omitted).

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.