The opinion of the court was delivered by: SAND
This case is before the Court upon defendants' motion to dismiss on the ground that plaintiff Hessee Realty, Inc. is barred by collateral estoppel from asserting its claim in this action, and that plaintiff Hessee Industries, Inc. fails to state any facts upon which a claim for relief may be based. For the reasons set forth herein, defendants' motion is granted.
Plaintiff Hessee Realty, Inc. ("Realty"), a wholly owned subsidiary of plaintiff Hessee Industries, Inc. ("Industries"), was a general partner in Village I Apartment Associates ("Village One"). Village One owned real property in Albany County, New York, which was encumbered by a building loan mortgage held by Security National Bank, the predecessor in interest of Chemical Bank and Chemical Realty Corp. (collectively "Chemical"). The mortgage was entered into in December, 1974. However, by September, 1975, Village One had failed to make monthly interest payments required by the agreement.
In February, 1977, Chemical brought an action to foreclose the mortgage in the Supreme Court of the State of New York, County of Albany, against Village One and Realty, as a general partner in Village One. Realty and Village One in their March, 1977 answer to Chemical's complaint, alleged as an affirmative defense that, in order to prevent Chemical from foreclosing and to obtain permanent financing, they had entered into an agreement with Chemical which provided for payment by Realty of $ 75,000 to Chemical, for adoption of a compromise plan for payment of past due interest, for payment by the limited partners of Village One of $ 74,129.98 to Chemical, and then for placement of the project on permanent financing. The answer further alleged that Realty paid and Chemical accepted the $ 75,000, that Realty submitted a compromise plan to Chemical, and that by virtue of the payment and acceptance, Realty and Village One were not in default. Finally, the answer alleged that Chemical breached the alleged agreement by rejecting the proposed compromise and by commencing the foreclosure action.
On April 1, 1978, an application by Rowley and Forrest, P.C. to be relieved as counsel for Village One and Realty in the foreclosure action was granted. The order granting the application provided that no further proceedings against Realty or Village One in the foreclosure action be taken until thirty days after service upon Realty and Village One of a notice to appoint another attorney. A notice to appoint another attorney was subsequently served by mail upon Realty and Village One on April 12, 1978.
On April 27, 1978, Village One filed a petition for a real property arrangement under Chapter XII of the Bankruptcy Act. This petition stayed the foreclosure proceedings.
On April 18, 1979, Realty and Industries commenced this action. The complaint, which was served on April 24, 1979, stated three causes of action based on an alleged "workout agreement" between Realty (as a general partner of Village One, on behalf of itself and Industries) and Chemical, to provide for modification and extension of a construction loan. The complaint alleged further that pursuant to this agreement, Realty caused Industries to pay a total of $ 75,000 to Chemical, that the limited partners of Village One agreed to pay an additional $ 75,000 upon the effectiveness of the workout, and that Chemical subsequently advised Realty that it would not enter into the workout arrangement and restructuring of the Village One mortgage. The first cause of action alleged that Chemical's failure and refusal to enter into a workout arrangement constituted a breach of the alleged workout agreement to plaintiffs' damage in the amount of $ 75,000. The second cause of action alleged that Chemical, for the purpose of inducing plaintiffs to pay it $ 75,000, an amount which plaintiffs allege they were not otherwise obligated to pay because of the nonrecourse nature of the loan, represented and warranted to the plaintiffs that upon payment of the $ 75,000, a workout arrangement would be adopted; that the alleged representations and warranties were false and untrue and known to be false and untrue when made; that in reliance on the alleged representations, plaintiffs paid $ 75,000 to Chemical, and that Chemical was unjustly enriched and plaintiffs damaged in that amount.
The third cause of action alleged that the $ 75,000 paid to Chemical was to be held in escrow, governed by an escrow agreement which provided for application of the $ 75,000 to the Village One indebtedness only upon entry of a workout arrangement; that Chemical acknowledged that it was holding the $ 75,000 in an escrow account; that no workout arrangement was entered; and that Chemical failed and refused to return the $ 75,000 in breach of its fiduciary duties to plaintiff and in breach of the alleged escrow agreement to plaintiffs' damage in that amount.
On May 31, 1979, Chemical filed an answer to plaintiffs' complaint in this action, admitting receipt of the $ 75,000, and denying most of the other allegations in the complaint. The answer raised three affirmative defenses: (a) that the complaint failed to state facts sufficient to constitute a cause of action; (b) that the action should be barred as a result of the pending action in the New York State Court, in which Realty's affirmative defense related to the same essential and general factual allegations and a decision of which would have res judicata effect as to the issues raised in this action; and (c) that Realty, as a general partner in Village One, was obligated and liable to defendants for past due interest on the loan, and that therefore, Chemical's failure to return the $ 75,000 caused no damage to the plaintiffs.
On October 24, 1979, the Bankruptcy Court granted Chemical's motion to dismiss the real property arrangement proceedings on the ground that Chemical, the sole secured creditor, had rejected the plan proposed by Village One and thus had lifted the stay.
In November, 1979, after the stay was lifted, Chemical made a motion in the foreclosure action for an order striking the defenses contained in the answer filed by Realty and Village One. In support of this motion, Chemical submitted an affidavit which set forth the terms of the various mortgages, the alleged defaults on those mortgages, the negotiations between the parties with respect to a workout, the failure of the parties to reach an agreement to a compromise plan, and the application by Chemical of the $ 75,000 paid by Realty to reduce the past due interest owed by Village One. Realty and Village One did not respond to the motion, which was granted on November 23, 1979.
On July 24, 1980, Chemical filed this motion to dismiss on the ground that Realty is barred by collateral estoppel from asserting its claim in this action; that Industries failed to state any facts upon which a claim for relief may be based because Chemical had no dealings with Industries and Industries should direct its claim to Realty; and that if Industries has a claim against Chemical, that claim is also barred by collateral estoppel.
Plaintiffs oppose the motion on the ground that the issues raised in this action were not decided in the New York foreclosure proceedings. Plaintiffs argue that the foreclosure action resolved the question of Village One and Realty's default on the loan in spite of the $ 75,000 payment, but did not determine whether a workout agreement existed, or whether Chemical was entitled to retain the $ 75,000 and apply it to past due interest. Plaintiffs also contend that an issue of fact exists as to Industries' contacts with Chemical, and that, with respect to the cause of action for unjust enrichment, there is no requirement that contacts between Industries and Chemical be alleged. Finally, plaintiffs argue that to the extent Realty is collaterally estopped by the state judgment, privity between ...