Huntington Nat. Bank v. Cornelius

• Decision Date: 16 December 2010
• Citation: 914 N.Y.S.2d 327,80 A.D.3d 245
• Parties: HUNTINGTON NATIONAL BANK, as Trustee for Franklin Mortgage Asset Trust, 2009-A, Appellant, v. Victor CORNELIUS, Respondent, et al., Defendants. A. Michael Krieger, Respondent.
• Court: New York Supreme Court — Appellate Division

914 N.Y.S.2d 327

80 A.D.3d 245

HUNTINGTON NATIONAL BANK, as Trustee for Franklin Mortgage Asset Trust, 2009-A, Appellant,

v.Victor CORNELIUS, Respondent, et al., Defendants.A. Michael Krieger, Respondent.

Supreme Court, Appellate Division, Third Department, New York.

Dec. 16, 2010.

Law Offices of Jeffrey S. Greene, P.C., White Plains (Jeffrey S. Greene of counsel), for appellant.

Law Office of Thomas J. Minotti, P.C., Highland (Thomas J. Minotti of counsel), for Victor Cornelius, respondent.

Schiller & Knapp, L.L.P., Latham (Gary A. Lefkowitz of counsel), for A. Michael Krieger, respondent.

Before: PETERS, J.P., SPAIN, LAHTINEN, KAVANAGH and GARRY, JJ.

PETERS, J.P.

Appeal from an order of the Supreme Court(Nichols, J.), entered September 8, 2009 in Columbia County, which granted a motion by A. Michael Krieger to vacate a prior judgment of foreclosure and sale and to be joined as a necessary party.

In September 1991, A. Michael Krieger purchased from defendantVictor Cornelius(hereinafter defendant) a one-half interest in Teviotdale, a historic home located in the Town of Livingston, Columbia County.As part of the transaction, the parties entered into and recorded a joint tenancy agreement which provided, in relevant part, that "[s]hould either partypurchase the entire property and within twenty years thereafter offer it for sale, the other party has the option to purchase the property for $800,000.00 plus a sum reflecting the benefit of any capital improvements made subsequent to the buyout."Defendant ultimately purchased Krieger's share of the property, and title was transferred to defendant alone in December 1995.

After defendant listed the property for sale in August 1997, Krieger commenced an action seeking a declaration of his rights under the joint tenancy agreement.Supreme Court(Cobb, J.) determined in April 1998 that Krieger's interest was a right of first refusal, as opposed to an option, and that decision was later affirmed by this Court on appeal ( Krieger v. Cornelius,259 A.D.2d 10, 11-12, 697 N.Y.S.2d 766[1999] ).Meanwhile, in January 1998, the then mortgagee of the property commenced a foreclosure action.In the context of that action, Supreme Court found in a March 1999 decision that Krieger's right of first refusal was superior to the mortgage and it could be exercised by Krieger at the foreclosure sale.That decision was not appealed, and the foreclosure sale was never consummated.

In August 2005, defendant procured a mortgage with plaintiff's predecessor in interest, Tribeca Lending Corporation.After defendant failed to make the required payments under the note and mortgage, Tribeca commenced this foreclosure action.A referee determined that the amount due on the note was $727,875.35 and a judgment of foreclosure and sale was granted.Prior to the sale, Krieger moved to vacate that judgment and to be joined as a necessary party, alleging that Tribeca's interest is subordinate to his right of first refusal and therefore any judicial sale must be subject to such right.Supreme Court(Nichols, J.) granted Krieger's motion, finding that, based on the March 1999 decision in the prior foreclosure action, Tribeca was barred from contesting whether Krieger's right of first refusal could be exercised at a foreclosure sale.This appeal ensued.¹

Plaintiff contends that Supreme Court improperly determined that Tribeca was in privity with the mortgagee in the prior foreclosure action and, therefore, bound by the March 1999 findings in that action.We agree."Collateral estoppel precludes a party from relitigating in a subsequent action or proceeding an issue raised in a prior action or proceeding and decided against that party or those in privity"( Buechel v. Bain,97 N.Y.2d 295, 303, 740 N.Y.S.2d 252, 766 N.E.2d 914[2001], cert. denied535 U.S. 1096, 122 S.Ct. 2293, 152 L.Ed.2d 1051[2002];seeRyan v. New York Tel. Co.,62 N.Y.2d 494, 500, 478 N.Y.S.2d 823, 467 N.E.2d 487[1984];Matter of Frontier Ins. Co.,73 A.D.3d 36, 41, 897 N.Y.S.2d 764[2010] ).This doctrine, being equitable in nature, is grounded on principles of fairness and ought not be rigidly or mechanically applied ( seeD'Arata v. New York Cent. Mut. Fire Ins. Co.,76 N.Y.2d 659, 664, 563 N.Y.S.2d 24, 564 N.E.2d 634[1990];Staatsburg Water Co. v. Staatsburg Fire Dist.,72 N.Y.2d 147, 153, 531 N.Y.S.2d 876, 527 N.E.2d 754[1988] ).Privity "is an amorphous concept not easy of application"( Matter of Juan C. v. Cortines,89 N.Y.2d 659, 667, 657 N.Y.S.2d 581, 679 N.E.2d 1061[1997][internal quotation marks and citations omitted] ) and requires "a flexible analysis of the facts and circumstances of the actual relationship between the party and nonparty in the prior litigation"( Evergreen Bank v. Dashnaw,246 A.D.2d 814, 816, 668 N.Y.S.2d 256[1998];seeD'Arata v. New York Cent. Mut. Fire Ins. Co.,76 N.Y.2d at 664, 563 N.Y.S.2d 24, 564 N.E.2d 634).It includes " 'those who are successors to a property interest, those who control an action although not formal parties to it, those whose interests are represented by a party to the action, and [those who are] coparties to a prior action' "( Matter of Juan C. v. Cortines,89 N.Y.2d at 667-668, 657 N.Y.S.2d 581, 679 N.E.2d 1061, quotingWatts v. Swiss Bank Corp., 27 N.Y.2d 270, 277, 317 N.Y.S.2d 315, 265 N.E.2d 739[1970];seeBuechel v. Bain,97 N.Y.2d at 304, 740 N.Y.S.2d 252, 766 N.E.2d 914).

Here, while Supreme Court found that Tribeca is the successor in interest to the mortgagee in the prior foreclosure action, the record is clear that Tribeca was not affiliated with the prior mortgagee nor was it an assignee of the mortgage that was previously foreclosed upon.Rather, defendant obtained a separate mortgage from Tribeca and used the loan proceeds therefrom to pay off the mortgage held by the prior mortgagee.Nor were Tribeca's interests represented in the prior action such that it could be found to be in privity with the prior mortgagee.Tribeca's relationship with defendant did not arise until long after the conclusion of the prior litigation, and it surely cannot be barred from raising its current arguments simply because it has the same status, as mortgagee, as the party in the prior foreclosure action ( seeTamily v. General Contr. Corp.,210 A.D.2d 564, 566-567, 620 N.Y.S.2d 506[1994] ).Furthermore, and not insignificantly, the mortgagee in the prior foreclosure action was a company owned by Krieger himself.Given that Krieger, either individually or through his wholly owned corporation, was both the plaintiff(mortgagee) and defendant(holder of the right of first refusal) in the prior litigation, it would be unjust to deny Tribeca a full and fair opportunity to litigate the issues pertaining to the applicability of the right of first refusal to this foreclosure proceeding.For all of these reasons, we conclude that plaintiff is not barred by the doctrines of res judicata orcollateral estoppel from challenging whether Krieger's right of first refusal could be exercised at the foreclosure sale.

Turning to the merits, plaintiff contends that Krieger's right of first refusal is not triggered by a judicial foreclosure sale.We begin our analysis of this issue, which is one of first impression in this Court, by examining the language creating the right of first refusal.The joint tenancy agreement grants Krieger the right of first refusal to purchase Teviotdale for a specified sum in the event that either party purchases the entire property and within 20 years thereafter "offer[s] it for sale."Here, however, defendant is not offering the property for sale.Rather, the referee, on behalf of the court, is the seller for the purpose of the foreclosure action ( seeLane v. Chantilly Corp.,251 N.Y. 435, 437, 167 N.E. 578[1929];Jorgensen v. Endicott Trust Co.,100 A.D.2d 647, 648, 473 N.Y.S.2d 275[1984] ).Moreover, we find that the word "offer," as here used, was intended to cover a conscious and voluntary choice by the owner to make...