Bank of Am., N.A. v. Fay

• Decision Date: 11 December 2020
• Docket Number: PC 16-1618, No. 2019-139-Appeal.,No. 2019-126-Appeal.,2019-126-Appeal.
• Citation: 242 A.3d 38
• Parties: BANK OF AMERICA, N.A. v. Timothy G. FAY et al.
• Court: Rhode Island Supreme Court

242 A.3d 38

BANK OF AMERICA, N.A.

v.Timothy G. FAY et al.

No. 2019-126-Appeal.

No. 2019-139-Appeal.

PC 16-1618

Supreme Court of Rhode Island.

December 11, 2020

Richard L. Gemma, Esq., Robert D. Wieck, Esq., for Plaintiff.

Thomas M. Dickinson, Esq., Timothy J. Morgan, Esq., William Kenneth O'Donnell, Esq., for Defendants.

Present: Suttell, C.J., Goldberg, Flaherty, and Robinson, JJ.

Chief Justice Suttell, for the Court.

The defendants, Timothy Fay (Fay) and David Patrick (Patrick) (collectively the guarantors or defendants), appeal from the entry of final judgment in favor of the plaintiff, Bank of America (the bank or plaintiff), in this consolidated appeal. The defendants raise three arguments on appeal. First, the defendants contend that the hearing justice erred in granting summary judgment in favor of the bank as to the defendants’ liability. Second, the defendants argue that the hearing justice erred in granting summary judgment in favor of the bank by finding that the defendants were bound by the Connecticut Superior Court's deficiency calculation. Third, the defendants assert that the hearing justice erred in failing to conduct a hearing on Fay's motion to amend his answer. For the reasons set forth herein, we affirm the judgment of the Superior Court.

IFacts and Travel

Fay and Patrick were the sole principals of Stonestreet Hospitality Realty Company, LLC (Stonestreet), a Connecticut Limited Liability Company; the pair owned 70 percent and 30 percent of the membership interests, respectively. On May 15, 2008, Stonestreet executed a promissory note (the note) to the bank in the amount of $21,808,000 with the intent to construct a hotel in Montville, Connecticut (the property), near Mohegan Sun casino. The note was secured by a first-position mortgage on the property and was associated with a senior construction and interim loan agreement (the loan agreement). On the same day, the guarantors, in their individual capacities, executed a guaranty of the loan agreement (the guaranty). The guaranty included a choice-of-law clause indicating that it would be governed by Rhode Island law, without giving effect to principles of conflict of laws. Further, the guaranty was executed in Rhode Island; Fay and Patrick are Rhode Island residents, and the bank is "a national banking association organized under federal law with a place of business in Providence, Rhode Island."

The loan agreement set forth a maturity date of November 21, 2014 for the note, which Stonestreet failed to pay. In September 2015, the parties entered into a loan forbearance agreement (the forbearance agreement) under which Stonestreet and the guarantors acknowledged: (1) Stonestreet's failure to honor its promise under the loan agreement to pay in a timely fashion; (2) that the loan agreement was still in effect; and (3) that a new maturity date would be set for December 15, 2015. The forbearance agreement also included a choice-of-law clause indicating that it would be governed by Connecticut law. Again, Stonestreet failed to pay the note.

Following the failure to pay, the bank filed complaints in Connecticut Superior Court and in Rhode Island Superior Court.

For clarity, we will recite the facts of each state's proceeding separately.

AConnecticut Proceedings

In May 2016, the bank filed a foreclosure complaint in Connecticut Superior Court seeking to foreclose its mortgage on the property. The guarantors were not named parties in the Connecticut proceedings.

In September 2017, the Connecticut hearing justice adjudicated the amount due and entered a judgment of strict foreclosure on the matter for $23,108,768.17, thereby quantifying the amount due under the note, and he set Stonestreet's "law days" to commence on October 31, 2017.¹ The parties stipulated that the facts warranted the entry of a judgment of strict foreclosure without a finding regarding the value of the property, which would be determined upon a motion for a deficiency judgment. The bank thereafter recorded a certificate of foreclosure on November 8, 2017.

The bank then filed an amended motion for a deficiency judgment. In April 2018, the Connecticut hearing justice found that the value of the property on the ownership transfer date was $18.4 million. Subsequently, in July 2018, the Connecticut hearing justice issued an order granting the bank's motion for a deficiency judgment against Stonestreet "as of April 30, 2018 in favor of the [bank] in the amount of $5,022,003.67 with post judgment interest accruing after April 30, 2018 at * * * prime rate plus four (4%) percent interest." No appeal was taken from that final judgment.

BRhode Island Proceedings

In April 2016, the bank filed a complaint in Rhode Island Superior Court arguing, inter alia , that the guarantors are jointly and severally liable to the bank for the indebtedness due under their guaranty. The bank then filed a motion for partial summary judgment in December 2017. Days before the hearing on that motion, Fay's attorney filed a petition for admission pro hac vice , which stated, "[Fay's out-of-state attorney] currently represents the interests of the [d]efendant in a companion case, with substantially similar issues in the State of Connecticut."² Subsequently, in June 2018, the hearing justice found that the guarantors were liable for the moneys due under the guaranty. The hearing justice, however, found that the precise amount of the deficiency was not before him at that time—all that was before him was the question of whether a deficiency existed.³

In August 2018, following the conclusion of the Connecticut proceedings, the bank moved for summary judgment in Rhode Island Superior Court, setting forth several legal theories in furtherance of its contention that the guarantors are "liable for the amount adjudicated by the Connecticut Proceeding." The hearing justice thereafter heard arguments from the bank and the guarantors regarding "the amount due under this guaranty." In his decision on the motion, the hearing justice addressed all six legal theories put forth by the bank, including: (1) the doctrine of merger; (2) res judicata ; (3) collateral estoppel; (4) the Restatement (Second) Judgments ; (5) judicial estoppel; and (6) the doctrine of judicial admission.

Through his discussion of these legal theories, the hearing justice ultimately found that the guarantors were in privity with Stonestreet and were thereby bound by the Connecticut deficiency judgment. The hearing justice then determined that, while Rhode Island law governed the guaranty, Connecticut law governed the issue of res judicata . In applying Connecticut law, the hearing justice found that res judicata barred the redetermination of the debt owed to the bank. With regard to collateral estoppel and the Restatement (Second) Judgments , the hearing justice determined that the principles applied to the judgment of the Connecticut Superior Court and, accordingly, both Fay and Patrick were "bound by the Connecticut Court's valuation of the [p]roperty."

Additionally, the hearing justice declined to hold a new trial on the amount of the deficiency because the doctrine of judicial estoppel would preclude such a trial, as the guarantors had previously argued before him that the Superior Court could not decide the amount, if any, that the guarantors would owe until the Connecticut Superior Court adjudicated the deficiency due. For these reasons, the hearing justice granted summary judgment in favor of the bank and found the guarantors jointly and severally liable to the bank for $5,022,003.67, plus interest, in accordance with the Connecticut Superior Court's previous judgment.

Final judgment was entered in favor of the bank on November 2, 2018. Fay filed a timely appeal on November 21, 2018, and Patrick did the same on November 26, 2018. The guarantors’ appeals were thereafter consolidated on May 29, 2019.

IIStandard of Review

"This Court will review the grant of a motion for summary judgment de novo , employing the same standards and rules used by the hearing justice." Nelson v. Allstate Insurance Company , 228 A.3d 983, 984-85 (R.I. 2020) (quoting JHRW, LLC v. Seaport Studios, Inc. , 212 A.3d 168, 175 (R.I. 2019) ). "We will affirm a trial court's decision only if, after reviewing the admissible evidence in the light most favorable to the nonmoving party, we conclude that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law." Id. at 985 (quoting Seaport Studios, Inc. , 212 A.3d at 175 ). "Furthermore, the nonmoving party bears the burden of proving by competent evidence the existence of a disputed issue of material fact and cannot rest upon mere allegations or denials in the pleadings, mere conclusions or mere legal opinions." Id. (quoting Seaport Studios, Inc. , 212 A.3d at 175 ).

"We accord great deference to the decision by a hearing justice to grant or deny a motion to amend and will not disturb his [or her] decision unless he [or she] abused his [or her] discretion." CACH, LLC v. Potter , 154 A.3d 939, 942 (R.I. 2017). " Rule 15(a) of the Superior Court Rules of Civil Procedure states that ‘leave [to amend] shall be freely given when justice so requires.’ " Id. We have applied this rule liberally to permit amendment "absent a showing of extreme prejudice." Id. (quoting Wachsberger v. Pepper , 583 A.2d 77, 78 (R.I. 1990) ).

IIIDiscussion

On appeal, the guarantors contend that the hearing justice erred when he granted the bank's motion for partial summary judgment as to the guarantors’ liability on the guaranty. The guarantors further argue that the hearing justice erred in granting the bank's motion for summary judgment, finding that the guarantors were bound by the Connecticut Superior Court's deficiency calculation. Finally, the guarantors assert that the hearing justice erred when he denied Fay's motion to amend his answer without a hearing.

AMotion for Partial Summary Judgment

Before this Court, the guarantors...