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February 26, 1993


The opinion of the court was delivered by: JOHN R. BARTELS


 I. Background

 On September 16, 1987, plaintiffs Gene Simms, Carlo Vona and Simms-Vona Partnership ("Buyers") entered into a contract of sale ("Contract of Sale") to purchase 42.5 acres of land in Shelter Island, New York ("Overlook I"), for $ 3.1 million from defendants George Biondo, Perry Duryea, Jr., and David Webb ("Sellers"). Shelter Island lies in Gardiner's Bay between the north and south forks of Long Island. Overlook I is located in the north part of Shelter Island and consists of 18 parcels subdivided for the construction of luxury homes. Defendants Thomas Carusona and Toni DiLeo were the sellers' brokers ("Brokers"). On December 18, 1987, Buyers and defendant Eastern Federal Savings and Loan Association ("Eastern") entered into a mortgage loan commitment ("Mortgage Loan Commitment") for $ 2.17 million in order to finance the purchase. On March 16, 1988, Buyers borrowed $ 2.17 million from Eastern by executing a note ("Note") and mortgage ("Mortgage"), and title to Overlook I was transferred. On the same day, Sellers and Eastern entered into a participation agreement ("Participation Agreement") whereby Sellers purchased a $ 170,000 interest in the Mortgage. Defendant James Donelan, then Senior Vice President at Eastern, represented Eastern in the Overlook I transaction.

 Buyers defaulted on the Note and Mortgage beginning in March, 1990. On May 2, 1990, Buyers and Eastern modified the terms and time of payment on the Note and Mortgage through an extension agreement ("Extension Agreement"), but the default was not cured. *fn1" On September 12, 1990, Buyers initiated this diversity action. On September 27, 1991, Eastern was declared insolvent, closed and placed under the receivership of the Resolution Trust Corporation ("RTC") pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub. L. 101-73, 103 Stat. 183 (August 9, 1989), codified in Titles 12 and 15 of the United States Code. The RTC replaced Eastern as defendant in this lawsuit pursuant to 12 U.S.C. §§ 1441a(b) and 1821(d)(2). The lawsuit was then stayed 180 days pending RTC administrative review as required under FIRREA. Simms v. Biondo, 785 F. Supp. 322 (E.D.N.Y. 1992). The RTC denied Buyers' notice of claim.

 Count II alleges fraudulent inducement against the Sellers and Brokers based on their false and misleading representations concerning the value of Overlook I and the error in the Davidson Appraisal. Count III alleges negligent misrepresentation as to value against Sellers, Brokers and Eastern based on the above described events in Count I. Count IV seeks rescission or reformation of the contract of Sale. Count v alleges breach of contract against Eastern. The Buyers allege here that they entered into an appraisal contract with Eastern ("Eastern Appraisal Contract") in which Eastern "impliedly represented" [sic] that it would produce an "objective and competent" appraisal of Overlook I. Amend. Com. P 39, 75. Count V alleges breach of the Eastern Appraisal Contract in the following two ways: [1] by misrepresenting the value of Overlook I in the resulting appraisal made by Eastern ("Eastern Appraisal"), dated December 15, 1987, at $ 3.155 million; and [2] by entering into the Participation Agreement without disclosing it to the Buyers. Count VI alleges that Sellers induced breach of the Eastern Appraisal Contract. Buyers claim that their mortgage broker, Richard Winters, secretly worked on behalf of the Sellers and improperly influenced Eastern in its preparation of the Eastern Appraisal.

 All defendants deny these allegations. RTC counterclaims for foreclosure on the Note, Mortgage and Extension Agreement. Buyers defend against foreclosure by raising affirmative defenses of fraud, misrepresentation, oppressive and unconscionable conduct equitable estoppel, illegality, and bad faith predicated on the above-described allegations in the Amended Complaint. Sellers broker Carusona, and the RTC now move for summary judgment on the Amended Complaint pursuant to Fed.R.Civ.P. 56. The RTC also now moves for summary judgment on its counterclaim for foreclosure.

 II. Discussion

 Summary judgment is proper only when, "viewing the facts in the light most favorable to the nonmovant, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." United States v. One Parcel of Real Property, 985 F.2d 70, (2d Cir. 1993). The court must resolve all ambiguities and draw all doubtful inferences against the moving party. Trans-Orient Marine Corp. v. Star Trading & Marine, Inc., 925 F.2d 566, 572 (2d Cir. 1991). "In order to defeat a properly supported motion for summary judgment, the nonmoving party must adduce sufficient evidence to permit a reasonable jury to return a verdict in his favor." Glazer v. Formica Corp., 964 F.2d 149, 154 (2d Cir. 1992). The Court will apply these summary judgment standards in Part A below to Sellers' and broker Carusona's motions on the Amended Complaint brought under New York law, in Part B below to RTC's motion on the Amended Complaint brought under federal law, and in Part C below to RTC's motion on its counterclaim for foreclosure brought under New York law.

 A. Sellers' and Carusona's Motions for Summary Judgment On the Amended Complaint

 1. Counts I and II: Fraud and Fraudulent Inducement

 The essence of this case is Buyers' claims in Count I and II that Sellers' and Carusona's opinion valuing Overlook I at $ 4 million was fraudulent. The long-established rule in New York is that statements concerning the value of real property are generally not actionable under a theory of fraud or fraudulent inducement. Ellis v. Andrews, 56 N.Y. 83, 85-87 (1874); Brang v. Stachnik, 235 A.D. 591, 257 N.Y.S. 671, 672 (1st Dept. 1932), aff'd 261 N.Y. 614, 185 N.E. 761 (1933); Seis v. Plaisantin, 52 A.D. 206, 65 N.Y.S. 70, 71-72 (2d Dept. 1900) ("it is well settled that a false statement as to the value of property, made by a vendor for the purpose of obtaining a higher price than he knows the property is worth, will not sustain an action for fraud by a purchaser who contracted for the purchase in reliance upon such statement; that the purchaser must rely upon his own judgment as to value, and that it is folly to rely upon the representation of the vendor in that respect"); see also Augsbury v. Adams, 135 A.D.2d 941, 522 N.Y.S.2d 691, 692 (3d Dept. 1987) (applying the above-stated rule to the purchase of chattels); 60 N.Y. Jur. 2d, Fraud and Deceit § 72 (1987). This rule is explained in two ways. First, representations as to value alone are generally matters of opinion upon which no detrimental reliance can occur. Id. Second, the doctrine of caveat emptor applies to real estate transactions such that a buyer has a duty to satisfy himself or herself of the quality of a bargained purchase price without trusting a seller. See Stambovsky v. Ackley, 169 A.D.2d 254, 572 N.Y.S.2d 672, 675-76 (1st Dept. 1991); London v. Courduff, 141 A.D.2d 803, 529 N.Y.S.2d 874, 875 (1st Dept.), app. dismissed without op., 73 N.Y.2d 809, 537 N.Y.S.2d 494, 534 N.E.2d 3389 (1988).

 Nevertheless, there are exceptions where "statements of value can, in certain circumstances, be regarded as a representation of existing fact. . . ." which are actionable as fraud. Cristallina S.A. v. Christie, Manson & Woods Intern., Inc., 117 A.D.2d 284, 502 N.Y.S.2d 165, 172-73 (1st Dept. 1986); 60 N.Y. Jur. 2d, Fraud and Deceit § 73 (1987). In the instant case, Buyers rely heavily on one such exception, Merry Realty Co. v. Martin, 103 Misc. 9, 169 N.Y.S. 696 (Sup. Ct. Kings Cty. 1918), aff'd sub. nom. Merry Realty Co. v. Shamokin & Hollis Real Estate Co., 186 A.D. 538, 174 N.Y.S. 627 (2d Dept. 1919); rev'd on other grounds, 230 N.Y. 316, 130 N.E. 306 (1921). In Merry Realty, the owners of an apartment building in Brooklyn, New York tricked Pennsylvania buyers by telling them that they were not the owners, but brokers who could render a disinterested expert opinion on the value of the building. The owners employed a dummy seller and fake deeds of sale to make the ruse successful. Buyers unwittingly told these phony brokers that they knew nothing about real estate values in Brooklyn and would rely on their expert opinion. The ...

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