MFW Associates, LLC v. Plausteiner et al
Filing
52
OPINION & ORDER re: 19 MOTION to Dismiss filed by Steven Plausteiner, Susan Plausteiner. For the foregoing reasons, defendants' motion to dismiss is denied. The parties are directed to jointly submit a proposed case management plan and scheduling order by April 1, 2016. The Clerk of Court is directed to close the motion pending at docket 19. (As further set forth in this Order.) (Signed by Judge Paul A. Engelmayer on 3/24/2016) (kko)
I.
Background
A. Factual Background 1
1. The $4.5 Million Loan and Snowdance’s Default
MFW is a limited liability company managed by Dan Purjes. Compl. ¶¶ 1, 13. MFW is
a creditor of Snowdance, LLC (“Snowdance”), a limited liability company which owned the
Ascutney Mountain Resort (“Resort”), a ski resort located in Vermont. Id. ¶¶ 6–7, 14. The
Plausteiners were the majority owners and sole officers of Snowdance at all relevant times, id.
¶ 7 2; they were also the sole owners of various other corporate entities involved in the Resort’s
development and management, id. ¶ 8. These included Snowdance Realty Company (“Realty”),
Snowdance Ski Company (“Ski”), and Snowdance Hotel Company (“Hotel”). Id. ¶ 8.
1
The facts are drawn primarily from the Complaint, Dkt. 1 (“Complaint” or “Compl.”). For the
purpose of resolving the motion to dismiss, the Court assumes all well-pled facts to be true and
draws all reasonable inferences in favor of the plaintiff. See Koch v. Christie’s Int’l PLC, 699
F.3d 141, 145 (2d Cir. 2012). The Court also considered the Amended Forbearance Agreement,
attached as Exhibit 1 to defendants’ memorandum of law in support of their motion to dismiss.
Dkt. 20, Ex. 1 (“AFA”). Consideration of the AFA is proper because, as the operative contract
underlying plaintiff’s claims, it is incorporated by reference in, and integral to, the Complaint.
Chambers v. Time Warner, Inc., 282 F.3d 147, 152–54 (2d Cir. 2002). “[W]hen a plaintiff
chooses not to attach to the complaint or incorporate by reference a [document] upon which it
solely relies and which is integral to the complaint, the court may nevertheless take the document
into consideration in deciding the defendant’s motion to dismiss, without converting the
proceeding to one for summary judgment.” Holowecki v. Fed. Express Corp., 440 F.3d 558,
565–66 (2d Cir. 2006) (alterations in original) (internal quotation marks omitted) (quoting Int’l
Audiotext Network, Inc. v. Am. Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995)), aff’d, 552 U.S.
389 (2008). The Court did not consider, however, the “Discharge Separate From Mortgage,”
attached as Exhibit 2 to defendants’ memorandum of law in support of their motion to dismiss.
Dkt. 20, Ex. 2, at 1. Although defendants contend that this document relates to certain
provisions of the AFA, it is neither referenced in, nor incorporated by, MFW’s Complaint, and
therefore may not be considered at this stage.
2
MFW represents in its briefs that, in July 2010, the Plausteiners surrendered their membership
interests in Snowdance. That factual claim is neither relevant to nor cognizable on this motion.
2
On May 19, 2005, Snowdance obtained a $4.5 million loan from the Palisades Regional
Investment Fund (“PRIF”) (the “PRIF Loan”) pursuant to a promissory note dated May 19, 2015
(the “Note”). Id. ¶ 9. 3 The PRIF Loan was secured by the buildings, improvements, and fixtures
upon the Resort. Id. The Plausteiners personally guaranteed the loan. Id.
Around December 2007, Snowdance defaulted on the PRIF Loan and PRIF initiated
foreclosure proceedings. Id. ¶ 10. PRIF and Snowdance then entered into an agreement that
PRIF would refrain from enforcing its rights and remedies under the PRIF Loan subject to
certain conditions (“Forbearance Agreement”). Id. ¶ 11.
Around February 2008, however, Snowdance defaulted on the Forbearance Agreement
and PRIF resumed the foreclosure proceedings in Vermont state court (“the Vermont Action”).
Id. ¶¶ 12, 20.
2.
The Assignment to MFW and the AFA
Around October 2008, MFW purchased, and was assigned, the PRIF Loan. Id. ¶ 14.
MFW then entered into the AFA, titled “Amendment No. 1 to the Forbearance Agreement dated
June 30, 2008”—a key document here. Id. ¶¶ 15–16. 4 The agreement extended the period of
forbearance until October 1, 2009. Id. ¶ 16.
The AFA states that it was entered into “by and between”:
MFW ASSOCIATES, LLC, . . . (the “Lender”), who is the successor
and assignee of PRIF ASCUTNEY, LLC (“PRIF”), and
SNOWDANCE LLC, . . . (the “Borrower”), STEVEN
PLAUSTEINER . . . , SUSAN PLAUSTEINER . . . (each sometimes
referred to herein as a “Guarantor” individually, jointly and
severally as the “Guarantors”), SNOWDANCE SKI COMPANY,
. . . SNOWDANCE HOTEL COMPANY, . . . SNOWDANCE
3
Although the Complaint refers to PRIF, the AFA and other documents indicate that the entity’s
full name is PRIF Ascutney, LLC. See, e.g., AFA at 1.
4
The AFA recites that Snowdance defaulted on the December 2007 forbearance agreement, and
that MFW agreed to a second forbearance agreement dated June 30, 2008. AFA ¶ 2.
3
REALTY COMPANY, . . . STEVEN PLAUSTEINER and SUSAN
PLAUSTEINER, (collectively, the “Pledgors”, and together with
the Borrower and the Guarantors, are referred to herein as the
“Debtor”).
AFA at 1. The AFA provides that it “shall be deemed incorporated into and made part of the
Transaction Documents.” Id. § 10. These, in turn, are defined to encompass the PRIF Loan and
the associated promissory note, the agreement for the sale of the PRIF Loan to MFW and the
associated assignment, and “all instruments, documents, mortgages, forbearance agreements and
other agreements executed in connection therewith or related thereto, and amendments
modifications, or supplements thereto.” Id. ¶ 1.
At the time MFW purchased the PRIF Loan, it had an unpaid principal balance of $1.35
million. Compl. ¶ 14. Section 5(a) of the AFA provides that, to satisfy the obligations under the
PRIF Loan, “Debtor shall pay” to MFW, by October 1, 2009, the reduced amount of
$850,000.00, plus 20% interest calculated from the date of the agreement and the date of
payment, plus reasonable fees, costs, and expenses incurred by MFW as a result of enforcement
of the Transaction Documents between the date of the agreement and date of payment. AFA §
5(a); Compl. ¶ 17. But, if the Debtor did not pay that reduced amount by October 1, 2009, § 5(b)
provides that MFW’s agreement to accept the reduced balance would become void, and “Debtor
shall pay to [MFW] the entire outstanding Debt, . . . which shall become due and payable
immediately,” which includes “all accrued and unpaid interest thereon to date, plus all fees,
costs, and expenses.” AFA § 5(b); Compl. ¶ 18. Section 5(b) provides that “Debtor also
acknowledges that it is obligated to pay any additional legal fees incurred by [MFW] through the
collection of the entire indebtedness owed by Debtor pursuant to the terms of the Transaction
Documents.” AFA § 5(b).
4
In addition to the costs and fees described in § 5, § 4 imposes additional obligations on
the Debtor regarding costs and fees. It provides: “The Debtor . . . jointly and severally agrees to
pay on demand all costs and expenses, if any (including . . . reasonable attorneys’ fees and
expenses), in connection with the enforcement . . . of this Amendment.” Id. § 4.
Finally, two provisions in § 8 are relevant here. Section 8(a) provides that the Debtor
“shall executed [sic] and deliver to [MFW] Limited Liability Membership Pledge Agreements
from Steven Plausteiner, Susan Plausteiner, [Ski], [Hotel], and [Realty] pledging all of the
limited liability common membership interests owned by each person or entity in Snowdance.”
Id. § 8(a). And § 8(e) provides that:
[MFW] hereby releases Guarantors, Steven and Susan Plausteiner,
from their obligations under the Transaction Documents and from
any guaranty relating in any way to the Transaction Documents,
including but not limited to, (i) the Guaranty dated May 19, 2005
given by the Guarantors in favor of PRIF and (ii) the Limited
Guaranty dated May 19, 2005 given by the Guarantors in favor of
PRIF (together the “Guarantees”). The Guarantees are hereby
terminated and of no further force or effect. . . . This release shall
only apply to Guarantors.
Id. § 8(e).
3. Prior Judicial Proceedings in Vermont 5
As the Complaint reflects, there have been legal proceedings in Vermont “relating to the
underlying PRIF Loan, with MFW foreclosing on the physical collateral that secured the PRIF
5
This section of the facts draws upon the publicly available docket and filings in the Vermont
Action, including legal submissions there by the parties, copies of the underlying transaction
documents attached to those submissions, and the Vermont court’s orders and judgments. It is
appropriate to consider these materials in resolving defendants’ motion to dismiss based on res
judicata, as courts resolving such claims “routinely take judicial notice of documents filed in
other courts . . . not for the truth of the matters asserted in the other litigation, but rather to
establish the fact of such litigation and related filings.” Giannone v. York Tape & Label, Inc.,
No. 06 Civ. 6575 (JFB), 2007 WL 1521500, at *1 (E.D.N.Y. May 23, 2007) (internal quotation
mark omitted) (quoting Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991)), aff’d,
548 F.3d 191 (2d Cir. 2008) (per curiam).
5
Loan.” Compl. ¶ 20. The Vermont Action (Docket No. 175-3-08 Wrcv) was brought in
Vermont Superior Court, Windsor County Civil Division. The following is an overview of that
action. The Court provides a more detailed account in its discussion, infra, of defendant’s
argument for dismissal based on res judicata.
On March 11, 2008, PRIF commenced the Vermont Action by filing a Complaint of
Foreclosure seeking to foreclose on the mortgage that secured the PRIF Loan as a result of
Snowdance’s default on the loan. Complaint of Foreclosure ¶¶ 5–15; Vt. Dkt. Entry 3/11/08.
The foreclosure proceedings were stayed on account of the forbearance agreements described
above; however, they resumed on November 3, 2009. See Vt. Dkt. Entries 3/23/09 and 11/03/09;
Compl. ¶¶ 12, 15–16; see AFA.
Specifically, the Court considered: the Docket, No. 175-3-08 Wrcv, Vermont Superior
Court, Windsor Civil Division, Dkt. 45–2 through 45–5 (“Vt. Dkt.”); the Complaint of
Foreclosure dated February 28, 2008; Dkt. 51–1 (“Complaint of Foreclosure”); the Amended
Complaints of Foreclosure dated January 29, 2010, June 29, 2010, and June 6, 2011, Dkt. 51–8
through 51–10 (collectively, the “Amended Complaints of Foreclosure”); the Supplemental
Complaint, Dkt. 51–4, at 1–7 (“Supplemental Complaint” or “Supp. Compl.”); Plaintiff’s
Memorandum of Law in Support of Summary Judgment With Respect to Pledged Membership
Interests, Dkt. 28–1 (“MFW SJ Br.”); the Decision Re: Cross-Motions for Summary Judgment,
Dkt. 24, Ex. C (“Vt. SJ Decision”); the Joint Stipulation Regarding Motion to Sell Lift and
Motion for Preliminary Injunction, Dkt. 24, Ex. D (“Joint Stipulation”); the Entry Regarding
Motion dated March 21, 2011 for the Motion to Allow Sale of Ski Lift, No. 23, Dkt. 46–3 (“Joint
Stipulation Order”); MFW’s Opposition to Snowdance Realty Company’s Motion for Partial
Distribution, Dkt. 46–4 (“MFW Partial Distribution Opposition”); the Decision on Pending
Motions, Dkt. 46–6 (“Pending Motions Decision”); the Judgment Order and Decree of
Foreclosure by Judicial Sale, Dkt. 41–1 (“Foreclosure Judgment Order”); the Decision on CrossMotions for Summary Judgment with Respect to Chairlift Sale Proceeds, Dkt. 46–9 (“Vt.
Chairlift Decision”); MFW’s Motion for Order of Confirmation of Sale, Dkt. 46–1 (“MFW
Confirmation Motion”); Order of Confirmation of Sale, Dkt. 46–2 (“Confirmation Order”); the
Promissory Note dated May 19, 2005, Dkt. 51–4, at 9–23 (the “Note”); the Mortgage,
Assignment of Leases and Rents and Security Agreement dated May 20, 2005 (the “Mortgage”),
Dkt. 51–4, at 25–76 and 51–5, at 1–14; the Forbearance Agreement dated June 30, 2008, Dkt.
51–5, at 16–25; the Pledge Agreements entered into by Ski, Susan Plausteiner, Steven
Plausteiner, Realty, and Hotel, Dkt. 51–7, at 39–75 (collectively, the “Pledge Agreements”).
Some of these documents were filed as attachments multiple times in this matter; for simplicity,
the Court references one of each filing.
6
After the foreclosure proceedings resumed, on January 27, 2010, MFW filed a
Supplemental Complaint against Snowdance, Realty, Ski, Hotel, and the Plausteiners. Supp.
Compl.; Vt. Dkt. Entry 1/27/10. The Supplemental Complaint sought to foreclose on the
ownership interests in Snowdance that had been pledged as collateral for the AFA. See id. ¶ 1.
After the Vermont court, on November 24, 2010, denied summary judgment on the
Supplemental Complaint, Vt. SJ Decision at 4, on February 15, 2011, MFW entered into a Joint
Stipulation with the Plausteiners, Realty, Hotel, and Ski, which provided that the Plausteiners
and Realty would consent to the sale of a chairlift, and that the Supplemental Complaint would
be “dismissed with prejudice,” Joint Stipulation ¶¶ 1, 3.
On August 14, 2013, following various motions and rulings pertaining to the foreclosure
proceedings, the Vermont court entered a Judgment Order and Decree of Foreclosure by Judicial
Sale (“Foreclosure Judgment Order”). It specified the amount of the judgment and the deadline
by which the named defendants could redeem the foreclosed property. Foreclosure Judgment
Order at 2–5. On November 19, 2013, the Vermont court issued an Order of Confirmation of
Sale, confirming the sale of the subject property, foreclosing on defendants’ interests in the
property, and indicating that “Plaintiff waives any deficiency claim.” Confirmation Order at 1–
2. The Vermont Action was closed on May 1, 2014. Vt. Dkt. Entry 5/1/14.
B. Procedural History
On April 2, 2015, MFW filed its Complaint in this action against Steven Plausteiner and
Susan Plausteiner. Dkt. 1. The Complaint brings one count for breach of contract under the
AFA and seeks damages not less than $4,002,606.61. Compl. ¶¶ 24–28. On May 15, 2015, the
Plausteiners answered. Dkts. 6, 8. As affirmative defenses, they asserted, inter alia, that MFW
7
“failed to state a claim upon which relief can be granted” and that MFW’s claims and cause of
action “is barred by the doctrines of collateral estoppel and res judicata.” E.g., Dkt. 6, ¶¶ 29, 33.
On June 3, 2015, the Plausteiners filed a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6), Dkt. 19 (“Motion”), 6 and an accompanying memorandum of law in support,
Dkt. 20 (“Def. Br.”), with exhibits attached. On June 18, 2015, MFW filed a memorandum of
law in opposition, Dkt. 23 (“Pl. Br.”). On June 26, 2015, the Plausteiners filed a reply, Dkt. 24
(“Def. Reply Br.”), with additional exhibits attached.
On July 1, 2015, MFW submitted a letter seeking leave to file a sur-reply to address the
issue of res judicata that was raised for the first time in the defendants’ reply, which the Court
granted on July 2, 2015. Dkts. 25, 26. On July 9, 2015, MFW filed a sur-reply in opposition to
the motion to dismiss. Dkt. 27 (“Pl. Sur-reply Br.”). On July 14, 2015, the Plausteiners, sua
sponte, submitted a letter to the Court, with additional attachments, Dkt. 28 (“Def. 7/14/15 Ltr.”),
in further support of their res judicata arguments and responding to arguments in MFW’s surreply. On July 23, 2015, MFW filed a letter in response, Dkt. 30 (“Pl. 7/23/15 Ltr.”), asking the
Court either not to consider the defendants’ July 14 Letter or to permit plaintiff to submit a
response, which was included in its letter. On August 10, 2015 the Court advised the parties that
6
A motion under Rule 12(b)(6) “must be made before pleading if a responsive pleading is
allowed.” Fed. R. Civ. P. 12(b). Here, the Plausteiners answered the Complaint prior to making
the instant motion; therefore the proper vehicle would have been a motion under Rule 12(c) for
judgment on the pleadings. See Fed. R. Civ. P. 12(c); Fed. R. Civ. P. 12(h)(2)(B); In re Livent
Sec. Litig., 193 F. Supp. 2d 750, 753 (S.D.N.Y. 2002). Because the instant motion could have
been brought under FRCP 12(c), and because under that circumstance “the court simply treats
the motion as if it were a motion to dismiss,” Nat’l Ass’n of Pharm. Mfrs., Inc. v. Ayerst Labs.,
850 F.2d 904, 909 n.2 (2d Cir. 1988), the Court construes defendants’ motion as one made under
FRCP 12(c), see id. (acknowledging that “technically the motion should have been styled”
differently, but noting “however” that the two motions are effectively the same and proceeding
to the next stage of analysis); see also Falls Riverway Realty, Inc. v. City of Niagara Falls, 754
F.2d 49, 53 (2d Cir. 1985) (treating a motion as one under 12(c) where the motion did not
specify under which rule it was brought).
8
it would consider both defendants’ July 14 letter and plaintiff’s July 23 letter in ruling on the
motion to dismiss. Dkt. 31.
On August 18, 2015, the Court issued an order directing MFW to file a supplement to the
Complaint, providing additional information regarding the citizenship, for diversity purposes, of
the members of MFW Associates, LLC. Dkt. 32. On August 24, 2015, in response, MFW filed
a supplemental statement concerning jurisdiction. Dkt. 33.
On September 11, 2015, the Court issued an Order directing defendants to submit the
“Decree of Foreclosure by Judicial Sale” from the Vermont Action, which had been referenced
in defendants’ submissions regarding res judicata, Dkt. 38, which defendants did on September
15, 2015, Dkt. 41 (attaching the Foreclosure Judgment Order).
On September 18, 2015, the Court heard argument. After argument, the Court invited the
parties to submit additional public record documents from the Vermont Action, along with letter
memoranda, relevant to the res judicata issue. Dkt. 44. On October 2, 2015, both plaintiff and
defendants submitted letters with exhibits attached. Dkts. 45 (“Pl. 10/2/15 Ltr.”), 46 (“Def.
10/2/15 Ltr.”). On October 5, 2015, plaintiff sua sponte filed a letter responding to defendants’
October 2 letter, Dkt. 47, and on October 7, 2015, defendants sua sponte filed a letter responding
to plaintiff’s October 5 letter, Dkt. 48. 7
On February 24, 2016, the Court issued an order directing the parties to submit additional
public record documents from the Vermont Action, specifically, the original Complaint in the
Vermont Action and, if there was one, the Amended Complaint operative at the time the
7
Although neither plaintiff nor defendants sought leave to file these additional submissions, the
Court has considered them.
9
Vermont Superior Court issued the Foreclosure Judgment Order. Dkt. 50. On February 29,
2016, the parties submitted the records the Court requested. Dkt. 51.
II.
Discussion
Defendants move to dismiss on two grounds. First, they argue, MFW’s claims are barred
by res judicata as a result of the Vermont Action. Second, they argue, the Complaint fails to
state a claim upon which relief can be granted, because the AFA released defendants of their
personal obligations under the loan and related agreements. The Court addresses these
arguments in turn.
A.
Res Judicata
In moving for dismissal based on res judicata, the Plausteiners argue that the Vermont
Action bars MFW’s present claims because (1) it resulted in a final adjudication on the merits, in
that the Vermont court dismissed the Supplemental Complaint with prejudice and issued the
Foreclosure Judgment Order and Confirmation Order; and (2) MFW’s present claim (that the
Plausteiners are personally liable on the debt) arises from the same facts and transactions at issue
in the Vermont Action. The Plausteiners therefore argue that MFW’s claims could have been
raised in the Vermont Action and cannot be raised here. They further argue that the issue of
whether they were personally liable on the debt was in fact presented by the Supplemental
Complaint in the Vermont Action, and that MFW forewent its right to pursue such claims when
it dismissed that complaint with prejudice and completed the foreclosure sale while waiving any
deficiency claims. The Plausteiners argue that res judicata also bars MFW’s present claims for
attorneys’ fees and the costs of enforcing the loan agreements in the Vermont Action.
In response, MFW principally argues that the Vermont Action does not preclude its
present claims because that was a foreclosure action, and under Vermont law, such an action
does not preclude a subsequent action on the underlying debt—either a deficiency claim or its
10
equivalent, a claim for breach of contract. As to the Supplemental Complaint, MFW argues that
it never litigated the Plausteiners’ personal liability on the debt, and that the Joint Stipulation’s
dismissal of the Supplemental Complaint did not preclude such claims. In any event, MFW
argues, the Joint Stipulation was later voided by breaching actions by the Plausteiners. And as to
the Foreclosure Judgment Order and Confirmation Order, MFW argues that the foreclosure was
against property held by Snowdance, not the Plausteiners, and therefore the waiver of deficiency
claims in the Confirmation Order barred only claims against Snowdance. Finally, MFW argues,
even if claims to recover the debt were barred, its claims for attorneys’ fees and costs incurred in
enforcing its agreements in the Vermont Action would not be.
To assess these competing claims, the Court first recaps in detail the Vermont Action,
and then considers the parties’ claims in light of principles of claim preclusion.
1.
The Vermont Action In Depth
On March 11, 2008, PRIF filed the Complaint of Foreclosure against Snowdance,
seeking to foreclose on the recorded Mortgage, which secured the PRIF Loan and underlying
promissory note. Complaint of Foreclosure at 4–5; Vt. Dkt. Entry 3/11/08. The bases for that
Complaint of Forfeiture were Snowdance’s defaults on the promissory note and the Forbearance
Agreement. See id. ¶¶ 5–15. 8 The Mortgage was between Snowdance as mortgagor and PRIF as
mortgagee. Mortgage at 1.
8
A second defendant, Textron Financial Corporation (“Textron”) was also named, because
Textron also had a mortgage from Snowdance and therefore may have had an interest in the
encumbered property. Complaint of Foreclosure ¶¶ 16–18. The Complaint of Foreclosure was
later amended to substitute MFW as successor in interest to PRIF and the named plaintiff, and to
add defendants Glenn B. Seward, Shelley M. Seward, Dan Purjes, and Myles Wittenstein, who
had also been granted mortgages on the encumbered property. See Amended Complaints of
Foreclosure. The two Seward defendants were later dismissed from the case. Vt. Dkt. Entry
5/10/10. The Amended Complaints of Foreclosure do not alter the substance of the foreclosure
action as relevant here. Therefore, the Court will refer herein to the Complaint of Foreclosure
unless otherwise specified.
11
On May 20, 2008, judgment for PRIF was entered on the Complaint of Foreclosure. Vt.
Dkt. Entry 5/20/08; Foreclosure Judgement Order at 1.
As noted above, the foreclosure proceedings were then stayed pursuant to several
forbearance agreements. They resumed after Snowdance defaulted on those agreements.
In addition to resuming the foreclosure proceedings on the Complaint of Foreclosure, on
January 27, 2010, MFW filed a Supplemental Complaint against Snowdance, Realty, Ski, Hotel,
and the Plausteiners. Supp. Compl. at 1, 7. 9 It described the action it brought as one “to
foreclose on membership interests in Snowdance LLC held by [Realty, Ski, Hotel, and the
Plausteiners] (collectively the ‘Guarantors’).” Id. ¶ 1. 10 The Supplemental Complaint alleged
that the Guarantors had executed Pledge Agreements “[i]n connection with” the AFA,
“guarantee[ing] the underlying debt of Snowdance” and granting MFW a “security interest” in
each pledgor’s equity and membership interests in Snowdance. Id. ¶ 19 (internal quotation mark
omitted). MFW sought to foreclose on the pledged interests because Snowdance was in default
on the AFA, and the Guarantors were therefore also in default on their Pledge Agreements. Id.
¶¶ 21–22.
MFW’s Supplemental Complaint had three counts. Count 1 was for breach of the
Forbearance Agreement, AFA, and Pledge Agreements. Id. ¶¶ 23–26. Count 2 was for
foreclosure and judicial sale of the collateral pledged under the Pledge Agreements. Id. ¶¶ 27–
30. And Count 3 was for a deficiency judgment, id. ¶¶ 31–32; it stated: “If the sale of the LLC
9
On March 23, 2010, the motion to file the Supplemental Complaint was granted. Vt. Dkt.
Entries 1/27/10, 3/23/10.
10
The Supplemental Complaint also listed as defendants Richard Frary, Joel Mael, and Textron.
Supp. Compl. at 1. The Supplemental Complaint indicated that Frary and Mael had minority
interests in Snowdance of 2.56% and 1.67% respectively. Id. ¶ 3.
12
interests in Snowdance is less than the amount of the debt secured by the guarantees then
Plaintiff [MFW] will be entitled to a deficiency judgment against the Guarantors.” Id. ¶ 32. As
relief, the Supplemental Complaint sought: a declaratory judgment that defendants were in
default under the AFA; attorneys’ fees; compensatory damages; authorization for the sale of the
equity interests in Snowdance and approval of the sale procedures as commercially reasonable;
foreclosure on defendants’ equity interests; a judgment for all sums due and to become due,
together with litigation costs, including attorneys’ fees; and a deficiency judgment. Id. ¶¶ A–H.
On May 27, 2010, MFW moved for summary judgment; on June 18, 2010, defendants
Ski, Hotel, Realty, and the Plausteiners cross-moved for partial summary judgment. See Vt. SJ
Decision, at 4. In its brief, MFW stated that it sought “a declaration that Debtors are liable for
any deficiency” that might remain after a judicial sale of the pledged collateral, and argued that
under the language of § 5(b) of the AFA, Debtors are liable for the entire outstanding debt if they
default on its terms. MFW SJ Br. 2, 7. In two footnotes, MFW stated that it was not pursuing a
deficiency judgment against the Plausteiners “personally at this time.” Id. at 2 n.1, 7 n.6.
On November 24, 2010, Judge William D. Cohen issued a decision denying the crossmotions for summary judgment. Vt. SJ Decision at 4. The decision noted, preliminarily, that
“the parties have already agreed that plaintiff is entitled to a commercially reasonable sale of the
collateral: the membership interests in Snowdance LLC that were owned by defendants Steven
Plausteiner, Susan Plausteiner, [Realty, Ski, and Hotel].” Id. at 1. The decision, therefore,
addressed only the question “whether the collateral pledge agreements were non-recourse, or
whether plaintiff is instead entitled to seek a deficiency judgment.” Id. Consistent with the
footnotes in MFW’s brief, the decision addressed only whether a deficiency judgment could be
obtained from Realty, Ski, and Hotel. Id.; see also id. at 2 (addressing “whether the contract
13
documents unambiguously establish whether the three Snowdance companies are jointly and
severally liable for the entire amount of the loan”). As to that issue, Judge Cohen analyzed the
interplay between the AFA’s payment terms and the Pledge Agreements’ remedy provisions. He
held it ambiguous whether the guarantors’ obligations extended to the entire loan or solely the
collateral pledged. See id. at 2–4. In a footnote, Judge Cohen observed that the analysis was
complicated, not clarified, by the AFA provision releasing the Plausteiners from their earlier
personal guarantees:
On the one hand, as plaintiff argues, the releases do show that the
parties knew how to draft specific releases from liability and could
have expressly limited the liability of the Snowdance companies if
that was their intent. On the other hand, it does not make sense to
release the personal guarantees if [MFW’s] interpretation of the
contract—that each pledger is jointly and severally liable for the
entire amount of the loan—is correct. The release of the guaranty
would be an empty gesture under that interpretation, for the
Plausteiners would still remain severally liable for the entire amount
of the loan in their individual capacities.
Id. at 3 n.1.
On February 15, 2011, MFW entered into a Joint Stipulation with the Plausteiners,
Realty, Hotel, and Ski. Joint Stipulation at 2, 5. It provided that the Plausteiners and Realty
would withdraw their objection to Snowdance’s motion to allow the sale of the ski lift and
consent to the sale, subject to the conditions stated in the Joint Stipulation. Id. ¶ 1. In addition,
the Joint Stipulation provided: “The Supplemental Complaint filed in this action shall be
dismissed with prejudice.” Id. ¶ 3. On March 21, 2011, the Vermont Superior Court granted
Snowdance’s motion to allow the sale of the ski lift pursuant to the parties’ agreement in the
stipulation. Joint Stipulation Order.
After the Joint Stipulation was entered, the foreclosure proceedings continued. On July
16, 2013, Judge Cohen held a hearing “regarding amounts due and priority of liens and security
14
interests,” at which MFW and Snowdance “stipulated to the amounts due.” Foreclosure
Judgment Order at 1. Judge Cohen approved the amounts and issued an order entering
judgment. Id.
On August 14, 2013, Judge Cohen issued the Foreclosure Judgment Order. Id. It
provided for a judgment that Snowdance owed a total of $5,224,187.61, comprised of, inter alia,
$1,320,903.76 in principal and $2,975,762.40 in interest, as well as $102,435.05 in legal fees.
Id. at 2. The Foreclosure Judgment Order further provided for an approximately 30-day
redemption period for Snowdance, Realty (as successor to Textron), Ski, Hotel, the Plausteiners,
Purjes, Wittenstein, Frary, and Mael to pay the full amount of the judgment. Id. at 2–5. The
Foreclosure Judgment Order also instructed that “[a]ny motion for a deficiency judgment based
on a claim in the Complaint shall be filed at the same time as the motion for confirmation.” Id.
at 8.
On November 6, 2013, MFW filed a Motion for Order of Confirmation of Sale. Vt. Dkt.
Entry 11/06/13; MFW Confirmation Motion. The motion stated that a “public sale of the lands
and premises subject to this foreclosure action” had taken place two days earlier, on November
4, 2013, and that the highest bidder was MFW, which bought the foreclosed property for $1.5
million. MFW Confirmation Motion at 1–2. The motion stated that MFW “dismisses its claims
for judgment for deficiency.” Id. at 2.
On November 19, 2013, Judge Cohen issued an Order of Confirmation of Sale. It
opened: “This foreclosure action was filed by Complaint dated March 11, 2008, by MFW
ASSOCIATES, LLC’s predecessor interest to [sic] PRIF ASCUTNEY, LLC, against above
named defendants,” which the caption listed as Snowdance, Realty (successor in interest to
Textron), Purjes, Wittenstein, Hotel, Ski, the Plausteiners, Frary, and Mael. Confirmation Order
15
at 1. After specifying the lands, premises, fixtures, and equipment foreclosed on, the
Confirmation Order stated that the interests of the named defendants in the subject lands and
premises had been foreclosed upon, and that the foreclosed property had been sold for $1.5
million against the total amount due MFW of $5,296,648.50, leaving no surplus for distribution.
Id. at 1–2. The Confirmation Order then specified, “Plaintiff waives any deficiency claim,” with
Judge Cohen adding a handwritten note, “—However, this waiver excludes the Plaintiff’s award
as a priority lien holder of funds currently being held in escrow from the sale of chairlift. See
Nov. 1 2013 Order. [Initialed] WDC.” Id. at 2. The order then confirmed the sale. Id. at 3.
2.
Legal Standards Governing Res Judicata
“Res judicata challenges may properly be raised via a motion to dismiss.” Thompson v.
Cty. of Franklin, 15 F.3d 245, 253 (2d Cir. 1994)); see also Yeiser v. GMAC Mortgage Corp.,
535 F. Supp. 2d 413, 421 (S.D.N.Y. 2008). “Under the doctrine of res judicata, or claim
preclusion, ‘a final judgment on the merits of an action precludes the parties or their privies from
relitigating issues that were or could have been raised in that action.’” Flaherty v. Lang, 199
F.3d 607, 612 (2d Cir. 1999) (quoting Rivet v. Regions Bank of La., 522 U.S. 470, 476 (1998))
(emphasis omitted); see also Federated Dep’t Stores, Inc., v. Moitie, 452 U.S. 394, 398 (1981).
Res judicata (claim preclusion) is distinct from the related doctrine of collateral estoppel (issue
prelusion), which “refers to the preclusive effect of a judgment that prevents a party from
litigating, for a second time, an issue of fact or law that has once been decided.” Yeiser, 535 F.
Supp. 2d at 421. Defendants argue that the Vermont Action bars MFW’s claims here under res
judicata, not collateral estoppel. Def. Reply Br. 8–10.
State court judgments on the merits have preclusive effect in federal courts. Gianatasio
v. D’Agostino, 862 F. Supp. 2d 343, 348 (S.D.N.Y. 2012) (citing the Full Faith and Credit Clause
of the United States Constitution, Art. IV, § 1, and the full faith and credit statute, 28 U.S.C.
16
§ 1783). A federal court’s determination of the res judicata effect of the state court judgment is
governed by “the preclusion law of the State in which the judgment was rendered.” Marrese v.
Am. Academy of Orthopaedic Surgeons, 470 U.S. 373, 380 (1985) (discussing the full faith and
credit statute); see also Giannone v. York Tape & Label, Inc., 548 F.3d 191, 192–93 (2d Cir.
2008) (“When determining the effect of a state court judgment, federal courts, including those
sitting in diversity, are required to apply the preclusion law of the rendering state.” (internal
quotation marks, citations, and alterations omitted)).
In Vermont, “under the doctrine of res judicata, or ‘claim preclusion, a final judgment in
previous litigation bars subsequent litigation if the parties, subject matter, and cause(s) of action
in both matters are the same or substantially identical.’ The doctrine ‘bars parties from
relitigating, not only those claims and issues that were previously litigated, but also those that
could have been litigated in a prior action.’” Nat. Res. Bd. Land Use Panel v. Dorr, 113 A.3d
400, 403 (Vt. 2015) (citations omitted) (quoting Faulkner v. Caledonia Cty. Fair Ass’n, 869
A.2d 103, 107 (Vt. 2004), and Carlson v. Clark, 970 A.2d 1269, 1273 (Vt. 2009)); see also
Russell v. Atkins, 679 A.2d 333, 335 (Vt. 1996) (res judicata “bars not only issues actually
litigated but also those which ‘should have been raised in previous litigation’” (quoting Berlin
Convalescent Center, Inc. v. Stoneman, 615 A.2d 141, 143–44 (Vt. 1992)).
As courts in Vermont cases have explained, the doctrine of res judicata serves to “protect
the courts and the parties from the burden of relitigation,” Russell, 679 A.2d at 335, and to
protect the integrity and finality of the judgments issued, Nat. Res. Bd., 113 A.3d at 403
(“Requiring the litigation of all claims that could or should have been raised between the parties
precludes later rulings that might ‘nullify the initial judgment or . . . impair rights established in
the initial action.’” (quoting Carlson, 970 A.2d at 1274) (ellipses in Nat Res. Bd.)); see also
17
Pomfret Farms Ltd. P’ship v. Pomfret Assocs., 811 A.2d 655, 659 (Vt. 2002) (“[I]nvocation of
res judicata . . . relieves parties of the cost and vexation of multiple lawsuits, conserves judicial
resources, and, by preventing inconsistent decisions, encourages reliance on adjudication.”
(quoting Kremer v. Chem. Constr. Corp., 456 U.S. 461, 467 n.6 (1982)) (internal quotation
marks omitted) (alterations in Pomfret)).
Relevant here, Vermont res judicata doctrine has distinct features when the prior lawsuit
was a foreclosure action. That is because such an action is distinct from a suit on an underlying
note. The leading Vermont case on this subject is LaFarr v. Scribner, 549 A.2d 651 (Vt. 1988).
In LaFarr, the defendants had given the plaintiff a second mortgage and a note secured by land
and premises they held. Id. at 652. The plaintiff then brought a foreclosure proceeding and
obtained from the court a judgment and decree of foreclosure on the mortgage. Id. The plaintiff
did not request a deficiency judgment, nor was one granted by the court. Id. The plaintiff then
filed a separate suit against the same defendants, “seeking the monies owed pursuant to the note
underlying the foreclosed mortgage.” Id. Defendants answered, asserting various affirmative
defenses to the suit on the underlying note. Id. The plaintiff countered that defendants were
barred by res judicata from offering the affirmative defenses due to their failure to raise them in
(or to oppose) the earlier foreclosure action. Id.
The Vermont Supreme Court held that res judicata did not apply, because “foreclosure
actions and deficiency actions are separate and distinct proceedings.” Id. “It is axiomatic that a
foreclosure action is an action in rem, while an action for a deficiency is an action in personam,”
the Court stated, and therefore “[n]either the mortgage nor the judgment impose any personal
liability on defendants.” Id. The Court explained: “The issues raised in a foreclosure action
include the validity of the mortgage, the amount of indebtedness due on the mortgage, and the
18
right of the mortgagee to seek satisfaction of the indebtedness from the mortgaged property. A
judgment and decree of foreclosure will bar litigation of those issues in another action by virtue
of the doctrine of res judicata.” Id. at 653.
The Vermont Supreme Court also rejected plaintiff’s claim that Vermont Rule of Civil
Procedure 80.1(b), which governs complaints and service of process in a foreclosure action,
required that the cause of action on the underlying note be brought in the same action. Id. at 652
n.*. Rather, it held, the only rule which “contemplates such merger” is Rule 80.1(j)(ii), which
provides that, “in a foreclosure by judicial sale, the court is empowered to enter a deficiency
judgment against the mortgagor if the plaintiff so requests in the complaint,” id. (emphasis
added); but that an initial action for strict foreclosure—in which possession of the mortgaged
property is transferred to the mortgagee rather than sold at auction—does not preclude an
ensuing action to collect the deficiency on the underlying debt, id. at 652 n.*, 653.
Thus, the Vermont Supreme Court concluded, “while the deficiency action was factually
related to the previous foreclosure action, it differed from the nature and substance of that
proceeding. Therefore, the doctrine of res judicata does not bar defendants from raising their
affirmative defenses” in the suit on the note itself. Id. at 653.
The application of LaFarr in Cowles v. Sunshine, 2005 Vt. Super. LEXIS 26 (Vt. Super.
Ct., Chittenden Cty. June 23, 2005) is similarly illuminating as to the limited res judicata effect
of a foreclosure action. The plaintiff there brought a foreclosure action on a mortgage the
defendants had secured with real property, and a second action for a deficiency judgment. Id. at
*1. A Vermont Superior Court issued a judgment and decree of foreclosure, establishing that the
plaintiffs owed defendant $451,875. Id. The property was then sold for $396,000, leaving
plaintiff, in the deficiency action, to seek the remaining $55,875. Id. Defendants then argued,
19
invoking res judicata and collateral estoppel, that the deficiency claims were barred because the
plaintiff could or should have raised them in the foreclosure action. Id.
The Superior Court rejected defendants’ bid for preclusion. As it explained, “press[ing]
the [deficiency] claim at foreclosure . . . would have been somewhat of an epistemological
conundrum for Plaintiff since it requires her to have made a specific claim for deficiency before
a post foreclosure sale established such a deficiency.” Id. at *2. Instead, the Court, citing
LaFarr, emphasized the “essential separation between mortgage obligations and personal
liability,” and that “foreclosure sets the stage for a deficiency action,” with “the res judicata
effect of the prior foreclosure judgment [being] to set the amount that Defendants owe.” Id.
The Superior Court added that “[w]hile V.R.C.P. Rule 80.1(j) does allow for a deficiency
judgment, it is only for a foreclosure by sale . . . [and] this was a strict foreclosure that did not
have the accompanying procedures for a foreclosure by sale.” Id. at *4. That was so even
though the plaintiff included a claim for deficiency in the original pleading. Id. at *3–4. The
Court therefore held that while the plaintiff was barred from bringing a later suit based on the
mortgage (which had been foreclosed on), he “may bring an action on any accompanying
promissory note or similar device that would make the Defendants liable.” Id. 11
11
In their briefs, both parties predominantly rely on federal cases from within the Second Circuit
applying res judicata principles, although MFW also addressed the Vermont cases of LaFarr and
Cowles. See Def. Reply Br. 8–10; Pl. Surreply Br. 2–3, 5–6. The federal cases appear consistent
with the relevant principles articulated in the Vermont cases. See Def. Reply Br. 9 (citing U.S.
ex rel. Sarafoglou v. Weill Med. Coll. of Cornell Univ., 451 F. Supp. 2d 613, 619 (S.D.N.Y.
2006) (“Under the well-settled doctrine of res judicata, a subsequent action is barred where: (1)
the prior action concluded with a final adjudication on the merits; (2) the prior claims and the
current claims involve the same parties or those in privity with them; and (3) the claims asserted
in the present action were, or could have been, asserted in the prior action because they arise
from a common nucleus of operative fact.”)). To be sure, Vermont law does not appear to use
the “common nucleus of operative fact” formulation, under which a later suit is precluded if it
arises out of “the transaction or series of transactions which was the subject of the prior suit,” see
Computer Assoc. Inter., Inc. v. Altai, Inc., 126 F.3d 365, 368 (2d Cir. 1997), except in the
20
3.
Application
The Plausteiners argue that MFW’s present action—for breach of contract on the AFA—
is barred by res judicata based on the prior Vermont Action. Specifically, they argue that two
acts disposing of claims there have such preclusive effect: (1) the dismissal with prejudice,
pursuant to the Joint Stipulation, of the Supplemental Complaint; and (2) the resolution, by the
Foreclosure Judgment Order and later Confirmation Order, of the Complaint of Foreclosure.
The Court addresses these arguments in turn.
a.
The Supplemental Complaint and Joint Stipulation
The Supplemental Complaint and Joint Stipulation come close, but ultimately fail to
satisfy the requirements of res judicata, because there never was a judicial sale of the pledged
collateral such that a deficiency claim could have actually been made.
As reviewed above, after PRIF had filed the Complaint of Foreclosure on the Mortgage
on account of Snowdance’s default on the Mortgage and the Forbearance Agreement, MFW, as
successor to PRIF, entered into the AFA with Snowdance, the Plausteiners, Realty, Hotel, and
Ski. Under that agreement, the Plausteiners, Realty, Hotel, and Ski executed Pledge
Agreements, whereby their equity and membership interests in Snowdance were pledged as
security for the AFA. See AFA § 8(a); Pledge Agreements. When Snowdance later defaulted on
the AFA, MFW filed the Supplemental Complaint, seeking to foreclose on the membership
context of determining whether a claim was a “compulsory counterclaim” in a prior action, and
therefore barred from being asserted in a subsequent action, see Pomfret Farms, 811 A.2d at
658–59 (a compulsory counterclaim is a claim that “arises out of the transaction or occurrence
that is the subject matter of the opposing party’s claim” (quoting V.R.C.P. 13(a)). But the Court
has no occasion here to consider whether Vermont’s limited use of that formulation is
substantive as opposed to semantic. The decisive issue here turns on the relationship between a
specialized type of lawsuit (a foreclosure action on a mortgage) and a deficiency action. As to
that, Vermont case law is clear that the mere factual overlap between such actions does not mean
that a follow-on deficiency action is precluded. LaFarr, 549 A.2d at 653.
21
interests in Snowdance pledged by the Plausteiners, Realty, Ski, and Hotel. Supp. Compl. ¶¶ 1,
21–22.
Rather than seeking a strict foreclosure of the pledged membership interests, MFW’s
Supplemental Complaint sought a judicial sale and a deficiency judgment. Id. ¶¶ 27–32. And,
even though the parties agreed that MFW was entitled to a judicial sale of the pledged interests,
MFW, for a time, sought a ruling to establish that, above and beyond the collateral pledged,
Realty, Ski, and Hotel were jointly and severally liable for the entire debt identified in the AFA,
and that MFW therefore could recover a deficiency judgment from them as well. See Vt. SJ
Decision at 1. Significantly, however, Judge Cohen denied summary judgment on that issue,
leaving it unresolved. Id. at 4. MFW, Snowdance, Realty, Ski, Hotel, and the Plausteiners then
entered into the Joint Stipulation, which, in addition to setting out the parties’ agreement
regarding the sale of a chairlift, provided that the Supplemental Complaint “shall be dismissed
with prejudice.” Joint Stipulation ¶ 3.
As the above account reflects, the filing of the Supplemental Complaint and the Joint
Stipulation meet several requirements for res judicata. First, the Joint Stipulation dismissing the
Supplemental Complaint with prejudice constitutes an adjudication on the merits for res judicata
purposes. See Russell, 679 A.2d at 335 (settlement including dismissal with prejudice binds the
parties as an adjudication on the merits) (citing Littlefield v. Town of Colchester, 552 A.2d 785,
786 (Vt. 1988)). Second, the parties are identical, as MFW was the plaintiff, and the Plausteiners
were defendants whose property (the membership interests) was being foreclosed on and against
whom a deficiency claim was pled. Third, the subject matter of the prior suit is the same as in
this one, in that the cases involve the same transaction documents (the AFA and the Pledge
Agreements executed pursuant thereto).
22
However, the final requirement of the res judicata test—that the cause of action is the
same or substantially identical—is not satisfied. That is because of the distinction, critical under
Vermont law, between foreclosure actions and actions on the underlying note. 12 To be sure, the
Supplemental Complaint initially sought, as a complement to a foreclosure sale of the pledged
collateral held by the Plausteiners, a judgment for any deficiency resulting from such a sale. And
had the sale occurred, MFW’s claim for a deficiency judgment, raised in the same lawsuit, would
have been ripe for, and capable of, resolution.
But, in the end, there was no foreclosure sale of the pledged membership interests. And,
with this precondition unmet, under Vermont law, a claim for deficiency judgment was never
ripe for resolution. See Pl. Sur-reply 5–6; Pl. 7/23/15 Ltr. at 1. Rather, as LaFarr and Cowles
demonstrate, until there is a foreclosure sale that “establish[s] such a deficiency,” a deficiency
claim simply does not and cannot exist. Cowles, 2005 Vt. Super. LEXIS 26, at *2. That MFW
had sought such relief in its pleadings to cover the eventuality of a foreclosure sale did not make
such relief available when the sale did not occur. Cowles illustrates the point: Even though the
plaintiff had pled a claim for deficiency in the prior foreclosure action, the fact that the case
proceeded through a strict foreclosure meant that there was no sale, and therefore, the previous
foreclosure action could not bar a later suit on the underlying note. See id. at *3–4. So too, here.
And although Judge Cohen stated in the Vermont Action that the parties had “agreed that
plaintiff is entitled to a commercially reasonable sale of the collateral: the membership interests
in Snowdance LLC that were owned by defendants Steven Plausteiner[ and] Susan Plausteiner,”
12
MFW acknowledges that a claim for deficiency judgment and a claim seeking judgment for
breach of the underlying note are “essentially the same,” and does not oppose defendants’ claim
preclusion arguments based on that distinction. Pl. 10/2/15 Ltr. at 2.
23
Vt. SJ Decision at 1, the Vermont Action’s docket does not suggest (and the parties do not claim)
that such a sale ever took place before the dismissal of the Supplemental Complaint. 13
In so holding for MFW on this ground, the Court rejects other arguments MFW makes as
to why the Joint Stipulation’s dismissal of the Supplemental Complaint lacked preclusive effect.
First, MFW argues that that Complaint was directed at wresting control of Snowdance from the
Plausteiners (and the other Snowdance entities the Plausteiners owned), and not at recouping
money damages. MFW Sur-reply Br. 3–4. But while gaining control of Snowdance may have
been a motive for MFW in filing the Supplemental Complaint, that Complaint also sought relief
in the form of a judicial sale of the membership interests and a deficiency judgment, as opposed
to strict foreclosure.
MFW separately argues that the litigation of the Supplemental Complaint did not seek to
establish the liability of the Plausteiners, Realty, Ski, and Hotel in their capacity as “Debtors” in
the AFA. Rather, MFW notes, it pursued liability against the persons and entities that had
executed Pledge Agreements as a “Guarantor.” Pl. Sur-reply Br. 4–5; Pl. 7/23/15 Ltr.; see Supp.
Compl. ¶¶ 19, 25, 28, 32. But this fact does not carry the day, because a deficiency judgment
seeks to establish the liability of the owner of foreclosed collateral for the underlying debt, and
the legal theory underlying that claim of liability is, for res judicata purposes, irrelevant. See
LaFarr, 549 A.2d at 652–63 (“If the foreclosure of the mortgaged premises is insufficient to
satisfy a debt secured by such mortgage, then the creditor’s recourse is through an action on the
note.” (emphasis added)); cf. Sand v. Bank of N.Y., 929 F.2d 916, 919 (2d Cir. 1991) (res
13
MFW represents, in fact, that the membership interests were surrendered to MFW in July
2010 rather than sold at a foreclosure sale. MFW Sur-reply Br. 4. The Court does not rely on
this representation, but notes if it did, this would reinforce the Court’s holding, as such a transfer
would more closely resemble a strict foreclosure than a judicial sale.
24
judicata does not depend on “the legal theory upon which a litigant relies” (citations omitted)).
That MFW argued before the Vermont court that it sought “a declaration that Debtors are liable
for any deficiency,” defining “Debtors” as Snowdance and the Pledgors collectively, shows that
the key issue underlying its deficiency claim was whether these entities were liable on the
underlying debt, not the precise legal capacity (Debtor versus Guarantor versus Pledgor) under
which they were so liable. See MFW SJ Br. 1–3, 7 (emphasis added).
MFW next argues that it never sought a deficiency judgment against the Plausteiners, but
rather only against Realty, Ski, and Hotel, and therefore res judicata cannot bar its present action
against the Plausteiners. Pl. 10/2/15 Letter, at 2. That argument fails for two reasons. First,
MFW’s footnotes in its summary judgment brief stated that it was not seeking deficiency
judgments against the Plausteiners “personally at this time.” MFW SJ Br. 2 n.1, 7 n.6. Although
these footnotes are less than crystal clear, a reasonable reading of them is that MFW was not
seeking summary judgment against the Plausteiners personally, as opposed to not pursuing that
claim at all in the litigation. There would have been good reason for that strategic decision, as
establishing the Plausteiners’ liability on the entire debt raised unique complications—namely,
the provision of the AFA releasing the Guarantors, the Plausteiners, from their obligations under
the Transaction Documents. See Vt. SJ Decision at 3 n.1 (noting that the release further
complicated the interpretation of the agreements). Second, and more important, even if MFW
had unambiguously expressed its intention not to seek a deficiency judgment in the Vermont
Action against the Plausteiners as part of the foreclosure on the pledged membership interests,
MFW still could have brought such a claim alongside its deficiency claims against Realty, Ski,
and Hotel. Res judicata bars claims that “could have been litigated in a prior action.” Nat. Res.
Bd., 113 A.3d at 403 (quoting Carlson, 970 A.2d at 1273). Therefore, had MFW foreclosed on
25
all of the pledged membership interests, conducted a foreclosure sale, and then sought only a
deficiency judgment against Realty, Ski, and Hotel, its claims against the Plausteiners here
would be precluded.
MFW next notes that the Vermont Superior Court itself did not view the Joint Stipulation
as resolving the issue of whether the Pledgors / Guarantors, specifically Realty, Ski, and Hotel,
were jointly and severally liable for the underlying debt. Pl. 10/2/15 Ltr. at 2. On August 3,
2012, the Vermont court issued a Decision on Pending Motions. While the thrust of the decision
was to resolve disputes over the parties’ respective control and interest in the remaining
Ascutney assets, at the end of its decision, the Vermont court set out the issues it identified as
outstanding, which included “whether the pledge agreements given by the three Snowdance
companies are recourse or non-recourse (the issue identified by the first summary-judgment
decision).” Pending Motions Decision at 12. MFW argues that, had the court construed the
Joint Stipulation as having left open (i.e., having left unresolved) that issue, then the claim for
joint and several liability against the three Snowdance companies or the Plausteriners cannot be
barred by res judicata. Pl. 10/2/15 Ltr. at 2–3. And, MFW argues, had the Plausteiners intended
the Joint Stipulation to preclude further adjudication of any claims for monetary damages against
the Pledgors / Guarantors of the membership interests, it would have objected to the Court’s
description of that issue as outstanding, whereas the Vermont docket reflects no such objection.
Id. This argument, however, is problematic as an independent basis for denying res judicata,
because there is no indication that issue remained pending before the Vermont Court following
the dismissal of the Supplemental Complaint. The filings in the Vermont docket supply no basis
on which to view that issue as open, as opposed to having been dropped, with no merits finding
having been made, upon execution of the Joint Stipulation.
26
Finally, MFW argues that the Joint Stipulation may have become void later, when the
Plausteiners violated its other terms by acting to block the sale of and to further encumber the
chairlift. Id. at 3; see also MFW Partial Distribution Opposition at 2–4. The Vermont Court,
however, never found such a violation, and instead ruled in MFW’s favor on other grounds, Pl.
10/2/15 Letter at 3, and it ruled that “the terms of the joint stipulation regarding priority never
became binding” because the terms of the stipulation were keyed toward the sale of the chairlift
to a specific buyer, which never occurred, Vt. SJ Chairlift Decision at 2. Responding to this
claim, the Plausteiners dispute that the Joint Stipulation ever became void, arguing that MFW, in
the Vermont Action, sought to enforce the Joint Stipulation according to its terms. Def. 10/2/15
Ltr. at 2–3. The Court cannot hold here, on a motion to dismiss, that the Joint Stipulation ever
became void, or did not, particularly as no court in Vermont ever so held. Because, as explained
above, the Joint Stipulation would not preclude the present action even if it remained effective,
the Court has no occasion now to resolve whether the Joint Stipulation became void by
subsequent events.
The Court therefore holds that the Joint Stipulation dismissing the Supplemental
Complaint with prejudice does not bar, under res judicata, MFW’s present suit for damages
under the AFA.
b.
Foreclosure Judgment Order and Confirmation Order
The Plausteiners next argue that the ultimate resolution of the Vermont Action—that is,
the Foreclosure Judgment Order and the ensuing Confirmation Order—preclude the present
action because these represented a final adjudication on the merits of the Vermont Action, and
because MFW, attendant to the foreclosure sale of the mortgaged property, expressly “waive[d]
any deficiency claim.” Def. 10/2/15 Ltr. at 1, 3–5. The Plausteiners argue that the word “any”
should be read to mean “all” deficiency claims against all defendants in the foreclosure action,
27
including them. Def. 10/7/15 Ltr. at 2. MFW counters that the Foreclosure Judgment Order
imposed money damages only on Snowdance, and that the waiver of deficiency claims similarly
applied only to Snowdance. Pl. 10/5/15 Ltr. Further, MFW explains, the Plausteiners were
defendants in the foreclosure action only in a limited capacity, to foreclose any claim they may
have in the foreclosed property. Id.
MFW’s arguments on this point are persuasive. The orders in question do not bar
MFW’s present action for personal liability against the Plausteiners under the AFA because the
foreclosure judgment and sale arose out of a foreclosure action with respect to property owned
by mortgagor Snowdance, not the Plausteiners. The waiver of “any deficiency” in the
Confirmation Order must be understood in the context of a suit for that limited purpose. The
Complaint of Foreclosure had been brought against Snowdance to foreclose on the Mortgage that
secured the PRIF Loan and attendant promissory note; the Mortgage had been entered into
exclusively between PRIF, as mortgagee, and Snowdance as mortgagor, see Mortgage at 1; and
the promissory note underlying the PRIF Loan had similarly been entered into between PRIF as
“Lender” and Snowdance as “Borrower,” see Note at 1. The foreclosure action was brought
against the mortgaged property owned by Snowdance on account of its default on the terms of
the Mortgage and underlying note. Any deficiency claim thus was against Snowdance only. See
LaFarr, 569 A.2d at 652 n.* (under V.R.C.P. 80.1(j)(ii), “in a foreclosure by judicial sale, the
court is empowered to enter a deficiency judgment against the mortgagor if the plaintiff so
requests” (emphasis added)). Consistent with this, the Confirmation Order provides that the
Foreclosure Judgment Order and ensuing sale would resolve the “foreclosure action . . . filed by
Complaint dated March 11, 2008 by [MFW’s] predecessor [in] interest to [sic] PRIF.”
28
As the Complaint of Foreclosure and the ensuing Amended Complaints of Foreclosure
reveal, the other defendants were sued not as mortgagors or because of their potential liability on
the underlying promissory note. Rather, as V.R.C.P. 80.1(b)(1) required, they were included as
“parties in interest”—or, as MFW cast them, “foreclosure defendants,” Pl. 10/5/15 Ltr.—
because they had potential interests in or liens on the mortgaged property. See, e.g., Complaint
of Foreclosure ¶¶ 17–18 (recounting that because Textron—later Realty as Textron’s successor
in interest—“may have or claim some interest or lien in or upon the Real Property, junior or
inferior to that of Plaintiff, [it] is hereby joined in this action as a defendant pursuant to Rule
80.1(b)(1)”); Dkt. 51–10 ¶¶ 19–24 (Amended Complaint of Foreclosure dated June 6, 2011)
(making similar allegations against other defendants).
The Foreclosure Judgment Order and Confirmation Order reinforce that the Plausteiners
were defendants in the foreclosure action for this sole reason. The Foreclosure Judgment Order
stated that unless the Plausteiners, or other defendants in interest, paid the full judgment owed by
the date of redemption, they “shall be foreclosed of and from all title, right, interest and demand
of and in the Mortgaged Property . . . and said defendant shall be foreclosed and forever barred
from all equity of redemption in the Mortgaged Property.” Foreclosure Judgment Order at 2–5.
With no defendant having paid the outstanding judgment, the foreclosure sale proceeded,
foreclosing the interests of the defendants in the subject lands. Confirmation Order at 2.
Notably, too, the parties that jointly stipulated to the amount of the debt owed were MFW and
Snowdance, not the Plausteiners, and these amounts, upon approval by the Court, formed the
basis of the judgment of foreclosure. Foreclosure Judgment Order at 1.
In this context, the requirements of res judicata are not met—because the causes of
action are not identical, or substantially so, as to the relevant parties. While unlike LaFarr, the
29
Vermont Action was not a strict foreclosure but instead a foreclosure by judicial sale such that a
deficiency claim could have been brought, the only applicable deficiency would have been owed
by Snowdance, the mortgagor of the property and the borrower on the underlying note. See
LaFarr, 549 A.2d at 652–53 (a deficiency action is a “personal action” against the defendant for
liability based on an underlying note); cf. Costello v. Enright (In re Costello), No. 04–1016, 2004
WL 2480995, at *3 (D. Vt. Bankr. Nov. 1, 2004) (because prior-case plaintiff sued both on the
underlying note and to foreclose on the mortgage, the prior-case defendants were subject to
personal liability, and res judicata barred them from later asserting claims that had been
compulsory counterclaims). Read in the context of the foreclosure sale, the provision that
“Plaintiff [MFW] waives any deficiency claim” does not connote that MFW was thereby
foregoing its rights to seek to collect on the difference between what was recovered in the
foreclosure sale and the total amount due on the underlying debt, such as through the present
contract action, against a different party (the Plausteiners), for breach of a different agreement
(the AFA).
Accordingly, the Court holds that the Vermont foreclosure action, as resolved in the
Foreclosure Judgment Order and the Confirmation Order, does not preclude MFW from seeking
to establish the Plausteiners’ personal liability under the AFA for the underlying debt. It follows,
too, that that action does not preclude MFW from seeking reasonable attorneys’ fees incurred in
enforcing the Transaction Documents.
For avoidance of doubt, this ruling here does not mean that the foreclosure action cannot
have some res judicata effect, but only that such effect does not extend to barring the present
case at the threshold. As LaFarr explained: “The issues raised in a foreclosure action include
the validity of the mortgage, the amount of indebtedness due on the mortgage, and the right of
30
the mortgagee to seek satisfaction of the indebtedness from the mortgaged property. A judgment
and decree of foreclosure will bar litigation of those issues in another action by virtue of the
doctrine of res judicata.” 549 A.2d at 653. Conceivably, MFW or the Plausteiners may rightly
invoke preclusion principles as to discrete issues that may arise here. For example, the values
stipulated to and ordered in the Foreclosure Judgment Order may control as to components of
any judgment that MFW may win here. The Court has no occasion to resolve such questions
now.
B.
Failure to State a Claim
The Plausteiners next seek dismissal under Rule 12(b)(6), arguing that the AFA expressly
releases them of all obligations. MFW responds that while that agreement relieves the
Plausteiners from their duties as “Guarantors,” it leaves them liable for the obligations under it as
“Debtors,” which is the basis for MFW’s present claim. The Court finds MFW’s interpretation
more persuasive, and holds that the release is insufficient to support dismissal at this stage.
1.
Legal Standards
To survive a motion to dismiss under Rule 12(b)(6), a complaint must plead “enough
facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). A claim will only have “facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint is properly
dismissed where, as a matter of law, “the allegations in a complaint, however true, could not
raise a claim of entitlement to relief.” Twombly, 550 U.S. at 558.
In considering a motion to dismiss, a district court must “accept[ ] all factual claims in
the complaint as true, and draw[ ] all reasonable inferences in the plaintiff’s favor.” Lotes Co. v.
Hon Hai Precision Indus. Co., 753 F.3d 395, 403 (2d Cir. 2014) (quoting Famous Horse Inc. v.
31
5th Ave. Photo Inc., 624 F.3d 106, 108 (2d Cir. 2010)) (internal quotation marks omitted).
However, “the tenet that a court must accept as true all of the allegations contained in a
complaint is inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678. “Threadbare recitals of
the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.
“[R]ather, the complaint’s factual allegations must be enough to raise a right to relief above the
speculative level, i.e., enough to make the claim plausible.” Arista Records, LLC v. Doe 3, 604
F.3d 110, 120 (2d Cir. 2010) (quoting Twombly, 550 U.S. at 555, 570) (internal quotation marks,
citation, and alteration omitted) (emphasis in Arista Records).
2.
Application
MFW has stated a prima facie claim for breach of contract. Under New York law, 14 a
breach of contract claim need allege only: “(1) the existence of an agreement; (2) adequate
performance of the contract by the plaintiff; (3) breach of contract by the defendant; and (4)
damages.” Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996). MFW’s Complaint pleads
these elements. It pleads that MFW and the Plausteiners were parties to a contract, namely the
AFA, Compl. ¶¶ 15–16, 25, that MFW “substantially performed all of its obligations” pursuant
to that agreement, id. ¶ 26, that the Plausteiners breached their obligations as “Debtor” under that
agreement by failing to pay the amounts owed according to its terms, id. ¶¶ 17–19, 27, and that it
was damaged monetarily as a result of the Plausteiners’ failure to pay the debt, id. ¶ 28. The
14
The AFA contains a choice of law provision (§ 18), which states that it “shall be governed by
and construed in accordance with the laws of New York, and/or Vermont, the choice of which is
subject to [MFW’s] sole and absolute discretion.” MFW cites exclusively to New York contract
law in opposing the motion to dismiss. See Pl. Br. 4–7. Where “[t]he parties’ briefs assume that
New York law controls . . . such ‘implied consent . . . is sufficient to establish choice of law.’”
Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 138 (2d Cir. 2000) (quoting Tehran-Berkeley
Civil & Envtl. Engineers v. Tippetts-Abbett-McCarthy-Stratton, 888 F.2d 239, 242 (2d Cir.
1989)).
32
Plausteiners counter that the AFA expressly released them from all personal liability on the debt,
such that they had no remaining obligations and cannot be in breach. Def. Br. 6–7.
In general, “[d]ismissal of a breach of contract claim is appropriate where a contract’s
clear, unambiguous language excludes a plaintiff’s claim.” Beth Israel Med. Ctr. v. Verizon Bus.
Network Servs., Inc., No. 11 Civ. 4509 (RJS), 2013 WL 1385210, *2 (S.D.N.Y. Mar. 18, 2013)
(citing Advanced Mktg. Grp., Inc. v. Bus. Payment Sys., LLC, 300 Fed. App’x 48, 49 (2d Cir.
2008) (summary order)); see also Photopaint Techs., LLC v. Smartlens Corp., 335 F.3d 152, 160
(2d Cir. 2003) (“Judgment as a matter of law is appropriate if the contract language is
unambiguous.” (alterations, internal quotation marks, and citation omitted)). A contract is
unambiguous when it has “a definite and precise meaning, unattended by danger of
misconception in the purport of the contract itself, and concerning which there is no reasonable
basis for a difference of opinion.” Photopaint Techs., 335 F.3d at 160 (internal quotation marks,
alterations, and citation omitted). “Whether or not a writing is ambiguous is a question of law to
be resolved by the courts.” Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of
N.Y., 375 F.3d 168, 178 (2d Cir. 2004) (internal quotation marks and citation omitted).
In arguing that they have been released from all obligations, the Plausteiners rely on
§ 8(e) of the AFA. It provides:
[MFW] hereby releases Guarantors, Steven and Susan Plausteiner,
from their obligations under the Transaction Documents and from
any guaranty relating in any way to the Transaction Documents,
including but not limited to, (i) the Guaranty dated May 19, 2005
given by the Guarantors in favor of PRIF and (ii) the Limited
Guaranty dated May 19, 2005 given by the Guarantors in favor of
PRIF (together the ‘Guarantees’). The Guarantees are hereby
terminated and of no further force or effect. . . . This release shall
only apply to Guarantors.
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As the Plausteiners note, the AFA provides that it “shall be deemed incorporated into and made
part of the Transaction Documents.” Id. ¶ 1 and § 10. They further note that § 8(e) provides that
the release “includes but [is] not limited to” the enumerated guarantees specified in that section.
Id. § 8(e) (emphasis added).
That release, however, by no means clearly releases the Plausteiners from their
obligations in all of their capacities under the AFA. Rather, as MFW argues, there is, at a
minimum, a substantial argument on the face of the agreement that it releases the Plausteiners
solely in their capacity as Guarantors. As noted, the agreement describes itself as “by and
between” multiple individuals and entities, and lists the Plausteiners in multiple capacities: as
“Guarantors,” as “Pledgors,” and, collectively with the Borrower (Snowdance) and other
Pledgors (Ski, Realty, and Hotel), as the “Debtor.” Id. at 1. However, the § 8(e) release, by its
terms, applies to “Guarantors, Steven and Susan Plausteiner,” and states that it “shall only apply
to Guarantors.” Id. § 8(e) (emphasis added).
In pursuing dismissal, the Plausteiners do not grapple with the release’s limitation to
“Guarantors.” They claim instead that because the Plausteiners are the Guarantors, it must be
that they were released of their obligations in all other capacities. But this ipse dixit does not
follow. On the contrary, the Plausteiners’ theory that § 8(e) is a global release is in tension both
with interpretive canons and other provisions of the AFA.
It is, first, in tension with the canon expressio unius est exclusion alterius, meaning that
“the expression of one thing implies the exclusion of the other.” See Croteau v. A.C. (In re
N.Y.C. Asbestos Litig.), 838 N.Y.S.2d 76, 80 (1st Dep’t 2007); see also Quadrant Structured
Products Co. v. Vertin, 23 N.Y.3d 549, 560 (2014) (noting the use of the canon for contract
interpretation). Under that canon, the limitation of the release expressly to the Guarantors carries
34
a negative implication that it does not apply to the other parties to the agreement, including the
Plausteiners in their capacities as Pledgors and as part of the collective “Debtor.” Second, the
Plausteiners’ interpretation appears at odds with other provisions of the AFA which imposed
obligations on them in non-Guarantor capacities. For example, § 8(a) provides that “Debtors
shall executed [sic] and deliver to [MFW] Limited Liability Membership Pledge Agreements
from Steven Plausteiner, Susan Plausteiner, [Ski], [Hotel] and [Realty] pledging all of the limited
liability common membership interests owned by each person or entity in Snowdance LLC.”
This evidently contemplates continuing obligations by the Plausteiners in their Debtor capacity.
Similarly, the AFA, which defines “Debtor” to include the Plausteiners, provides that “[t]he
Debtor acknowledges and confirms that they are indebted to [MFW],” AFA § 2, and that
“Debtor shall pay to [MFW]” the amounts specified in the agreement, id. § 5. The Plausteiners’
interpretation would appear to vitiate these clauses, in conflict with the principle that “an
interpretation of a contract that has the effect of rendering at least one clause superfluous or
meaningless . . . is not preferred and will be avoided if possible. . . . Rather, an interpretation
that gives a reasonable and effective meaning to all terms of a contract is generally preferred to
one that leaves a part unreasonable or of no effect.” Bank of N.Y. Trust, N.A. v. Franklin
Advisers, Inc., 674 F. Supp. 2d 458, 463 (S.D.N.Y. 2009) (ellipses in original) (quoting Galli v.
Metz, 973 F.2d 145, 149 (2d Cir. 1992)) (internal quotation marks and alteration omitted) , aff’d
sub nom. Bank of N.Y. Trust Co. v. Franklin Advisers, Inc., 726 F.3d 269 (2d Cir. 2013).
To be sure, the purpose of releasing the Plausteiners only in one limited capacity is
elusive. Judge Cohen observed in his summary judgment decision:
[I]t does not make sense to release the personal guarantees if [MFW’s]
interpretation of the contract—that each pledger [or each individual and entity
comprising the Debtor] is jointly and severally liable for the entire amount of the
loan—is correct. The release of the guaranty would be an empty gesture under that
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