make each partner or joint venturer an agent of the others." Cutco Indus., 806 F.2d at 366. Because Rogers was the acting general partner for the joint venture, his contacts with New York in the course of doing business for the joint venture are properly attributed to Allsuite. See id.
In addition, the Court finds that the present litigation arises from Allsuite's use of the New York Property. In this regard, plaintiff brings this action to foreclose on a mortgage that secured various loans made to Allsuite. According to the complaint, Allsuite's default on a loan secured by the New York Property directly resulted in 5-Star's exercise of its right of foreclosure pursuant to the applicable loan agreement. Thus, this Court concludes that the present action arises from real property situated in New York which Allsuite used. Accordingly, plaintiff has succeeded in making a prima facie showing of personal jurisdiction over Allsuite under CPLR § 302(a)(4).
B. Due Process Analysis
Plaintiff also has succeeded in making a prima facie showing that this Court's exercise of personal jurisdiction over Allsuite is consistent with the Due Process Clause of the Fifth and Fourteenth Amendments. Due process requires that the defendant have "certain minimum contacts with [the forum state] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." International Shoe Co. v. State of Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95 (1945). Where, as in the instant case, specific jurisdiction is asserted, this Court
is allowed "to exercise 'personal jurisdiction over a defendant in a suit arising [out of] or related to the defendant's contacts with the forum.'" Loral Fairchild Corp. v. Victor Co., 803 F. Supp. 626, 631 n.10 (E.D.N.Y. 1992) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473 n.15, 105 S. Ct. 2174, 2182 n.15, 85 L. Ed. 2d 528 (1985)). This condition is met here because this action arises from Allsuite's single contact with New York State, specifically, the use of real property located in New York State.
In addition, defendant Allsuite's contacts with New York, through the acts of its agent Rogers, are such that it "should reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S. Ct. 559, 567, 62 L. Ed. 2d 490 (1980). Indeed, Allsuite purposefully availed itself of the benefits and protection of the laws of New York by using the New York Property to secure a note, the obligations and remedies of which are the subject of this action. See Burger King, 471 U.S. at 475, 105 S. Ct. at 2183 (citing Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 774, 104 S. Ct. 1473, 1478, 79 L. Ed. 2d 790 (1984); World-Wide Volkswagen, 444 U.S. at 299, 100 S. Ct. at 568). Accordingly, Allsuite's joinder as a defendant in this action is consistent with due process.
II. Rogers' and Allsuite's Motion to Dismiss For Failure to State a Cause of Action
Defendants Rogers and Allsuite move pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss the complaint against them for failure to state a claim on the grounds that, under New Mexico law, the mortgage that plaintiff holds is unenforceable because plaintiff is not the holder of the underlying promissory note secured by such mortgage. With respect to this issue, the parties do not dispute that New Mexico law applies to this case
and that the Supreme Court of New Mexico has not spoken concerning this issue.
A. Standards Governing Rule 12(b)(6) Motion to Dismiss and Judicial Notice
A district court should grant a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure only if "'it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249-50, 109 S. Ct. 2893, 2906, 106 L. Ed. 2d 195 (1989) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 2232, 81 L. Ed. 2d 59 (1984)). In applying this standard, a district court must "read the facts alleged in the complaint in the light most favorable" to the plaintiff, and accept these allegations as true. Id. at 249, 109 S. Ct. at 2906; see Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90 (1974); see also Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, 507 U.S. 163, 168, 113 S. Ct. 1160, 1163, 122 L. Ed. 2d 517 (1993) (citing Fed. R. Civ. P. 8(a)(2) to demonstrate liberal system of 'notice pleading' employed by the Federal Rules of Civil Procedure).
In connection with their motion to dismiss, defendants Rogers and Allsuite have attached pleadings, motion papers, and a transcript from other judicial proceedings. In this regard, the Court takes judicial notice, pursuant to Rule 201 of the Federal Rules of Evidence, that two related actions have been commenced in respect of the same underlying obligation that is secured by the mortgage in question. First, on November 7, 1995 (more than three months after the instant action was commenced), Rogers and Allsuite filed a declaratory-judgment suit in the United States District Court for the District of New Mexico against 5-Star with respect to the mortgage in question in the present action. See Rogers Aff. Ex. A (copy of complaint). Upon 5-Star's motion, see Dow Aff. Ex. C, the New Mexico federal district court determined that it lacked personal jurisdiction over 5-Star, and transferred said case to the Eastern District of New York pursuant to 28 U.S.C. § 1631. See Rogers v. 5-Star Management, Inc., Civ. No. 95-1331 BB/WWD, at 1 (D.N.M. May 20, 1996).
Second, an action is pending in New Mexico state court, Second Judicial District Court, County of Bernalillo, which is entitled Bank of America National Trust and Savings Association v. Albuquerque Allsuite Associates and John A. Rogers et al., CV-95-09776 [the "State Court Action"]. According to the complaint in the State Court Action, Bank of America National Trust and Savings Association ["Bank of America"] seeks to foreclose on a mortgage given by Rogers on certain real estate located in Albuquerque, New Mexico. Id. Compl. P 12 (Dow Aff. Ex. B). This action is noteworthy because at a hearing held therein on January 2, 1996, Hayward Taylor, the president of 5-Star, admitted under oath that 5-Star is not in possession of the note being sued upon in the present action and that it filed its complaint in this action without possessing or holding said note. Id. Dow Aff. Ex. A, at 22. The plaintiff has not disputed the authenticity of the transcript containing said admission, which was attached by the defendants as an exhibit in support of their motion to dismiss, or defendants' description of who Mr. Taylor is and the factual significance of his testimony.
Rather, plaintiff's contentions focus instead upon the legal ramifications attending 5-Star's lack of actual physical possession of the note in question.
The issue arises as to whether it is appropriate for this Court to consider Taylor's statement at the hearing in the State Court Action for the truth of the matter asserted, to wit, that plaintiff lacks actual physical possession of the note in question. This concern arises because, if on a motion pursuant to Fed. R. Civ. P. 12(b)(6), "matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Fed. R. Civ. P. 12(b).
When presented with a motion to dismiss, this Court "is permitted to take judicial notice of matters of public record," Clarry v. United States, 891 F. Supp. 105, 109 (E.D.N.Y. 1995), aff'd, 85 F.3d 1041 (2d Cir. 1996), including "the fact of such litigation and related filings." City of Amsterdam v. Daniel Goldreyer, Ltd., 882 F. Supp. 1273, 1279 (E.D.N.Y. 1995); see Marshall County Health Care Auth. v. Shalala, 300 U.S. App. D.C. 263, 988 F.2d 1221, 1222 (D.C. Cir. 1993). Judicial notice, however, generally does not extend to the truth of the matter asserted in the other litigation. See City of Amsterdam, 882 F. Supp. at 1278-79. This is consistent with Fed. R. Evid. 201(b) which provides, in pertinent part, that "[a] judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b). Further, as a safeguard against a court's improvident application of judicial notice, Fed. R. Evid. 201(e) provides that "[a] party is entitled upon timely request to an opportunity to be heard as to the propriety of taking judicial notice and the tenor of the matter noticed. In the absence of prior notification, the request may be made after judicial notice has been taken." Fed. R. Evid. 201(e). Rule 201, however, does not specifically address the circumstances of the case at bar wherein plaintiff's principal has made a critical admission in another judicial proceeding that bears substantially upon the legal sufficiency of its complaint in the present action, and the plaintiff, upon adequate notice, neither has contested the defendants' factual characterization of its principal's admission nor has sought to convert defendants' motion to dismiss into a motion for summary judgment.
Applying these principles to the unique circumstances presented in the case at bar, the Court regards it to be appropriate to consider Taylor's admission for the truth of the matter asserted--i.e., 5-Star's failure to possess the note in question at all relevant times--and that such may be considered by the Court without converting defendants' motion to dismiss into a motion for summary judgment. In reaching this determination, the Court finds that plaintiff had sufficient notice of the defendants' intention that this Court take judicial notice of its principal's admission in the State Court Action, and the factual significance that the defendants sought to attach to this admission. In view of plaintiff's failure to object, and moreover in the absence of any allegation within its complaint that plaintiff holds the promissory note in question, the Court concludes, for purposes of construing the complaint, that plaintiff does not allege actual physical possession of the promissory note that is secured by the mortgage upon which it seeks to foreclose. As subsequently will be discussed, this determination, in view of the allegations of plaintiff's complaint, holds considerable significance in leading the Court to dismiss the complaint. Nevertheless, consistent with Fed. R. Evid. 201(e), the Court shall not regard this finding in respect of the present complaint to constitute "the law of the case," and any disagreement with the taking of said judicial notice may be addressed by the plaintiff in an amended complaint. See also O'Brien v. DiGrazia, 544 F.2d 543, 546 n.3 (1st Cir. 1976) (An omission of ultimate fact regarding a pivotal element of a pleader's claim justifies the court to assume the non-existence of the operative fact.), cert. denied, 431 U.S. 914, 97 S. Ct. 2173, 53 L. Ed. 2d 223 (1977); Ledesma for Ledesma v. Dillard Dep't Stores, Inc., 818 F. Supp. 983, 984 (N.D. Tex. 1983) (same).
B. Analysis of Rule 12(b)(6) Motion to Dismiss
In support of their motion to dismiss plaintiff's complaint, defendants Rogers and Allsuite contend that under New Mexico law an assignment of a mortgage without the note is a nullity. Although recognizing that the New Mexico Supreme Court has not spoken on this issue, the defendants assert that this Court, sitting in diversity jurisdiction, in predicting New Mexico law should follow the decisive weight of authority which would regard plaintiff's failure to allege that it possesses the underlying promissory note to be fatal to the legal sufficiency of the complaint.
This Court must apply New Mexico substantive law because the Modification Agreement provides that New Mexico law will govern any dispute arising thereunder. See Compl. Ex. E P 27, at 23. In this regard, "federal courts sitting in diversity cases will, of course, apply the [choice-of-law rules] of the forum State on outcome determinative issues." Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114, 119 (2d Cir. 1994) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938)). Further, "it is well established that the court will honor the parties' choice of law where there is a reasonable basis for the choice or the chosen State has some relation to the agreement." Depositors Trust Co. v. Hudson Gen. Corp., 485 F. Supp. 1355, 1359 (E.D.N.Y. 1980). Thus, because New York courts would apply New Mexico law in determining the rights of the parties to the present dispute, this Court must predict how the Supreme Court of New Mexico would rule on the substantive issues presented in the defendants' motion to dismiss. See Travelers, 14 F.3d at 119.
The task of predicting New Mexico law is rendered somewhat more difficult here because, as the parties agree, the Supreme Court of New Mexico has not addressed the precise issue of whether a mortgage may be foreclosed upon when the holder of such mortgage is not in possession of the underlying note. In addition, it does not appear that the lower courts of New Mexico have addressed this issue either.
In ascertaining a particular state's substantive law when the highest court of that state has not spoken, a federal court should "consider relevant cases from jurisdictions other than [the subject state] in an effort to predict 'what would be the decision of reasonable intelligent lawyers, sitting as judges of the highest . . . court [of that state], and fully conversant with [such state's] jurisprudence." Id.
Although the New Mexico Supreme Court has not ruled on this issue, the decisive weight of authority within other jurisdictions holds that an assignment of a mortgage without the underlying debt is a nullity, and therefore unenforceable, unless the promissory note in question has been lost or destroyed, or the original contracting parties intended the mortgage to be independently enforceable. See 55 Am. Jur.2d: Mortgages § 1283, at 1038-39 (1971); 59 C.J.S. Mortgages § 356, at 504-07 (1949); Federal Deposit Ins. Corp. v. Bracero & Rivera, Inc., 895 F.2d 824, 827 (1st Cir. 1990) (applying Puerto Rico law); Brunn v. Wichser, 75 F.2d 25, 27 (3d Cir. 1934) (applying Pennsylvania law); In re Leisure Time Sports, Inc., 194 Bankr. 859, 861 (Bankr. 9th Cir. 1996) (applying California law); United States v. Freidus, 769 F. Supp. 1266, 1277-78 (S.D.N.Y. 1991) (applying New York law); In re BNT Terminals, Inc., 125 Bankr. 963, 970-71 (Bankr. N.D. Ill. 1990) (applying Illinois and Nebraska law); In re Hurricane Resort Co., 30 Bankr. 258, 260-61 (Bankr. S.D. Fla. 1983) (applying Florida law); South Carolina Nat'l Bank v. Halter, 293 S.C. 121, 359 S.E.2d 74, 77 (S.C. Ct. App. 1987) (applying South Carolina law); Barton v. Perryman, 265 Ark. 228, 577 S.W.2d 596, 600 (Ark. 1979) (applying Arkansas law); Rockford Trust Co. v. Purtell, 183 Ark. 918, 39 S.W.2d 733, 736 (Ark. 1931) (applying Arkansas law); Kluge v. Fugazy, 145 A.D.2d 537, 536 N.Y.S.2d 92, 93 (App. Div. 2d Dep't 1988) (applying New York law); Beak v. Walts, 266 A.D. 900, 42 N.Y.S.2d 652, 653 (App. Div. 4th Dep't 1943) (per curiam) (applying New York law); Merritt v. Bartholick, 36 N.Y. 44, 51 (1867) (applying New York law); see also Kawai Am. Corp. v. Hilton, 205 A.D.2d 1021, 613 N.Y.S.2d 989, 991 (App. Div. 3d Dep't 1994) (applying New York law) (exception where intent of the original contracting parties overrode the default rule), leave to appeal dismissed, 87 N.Y.2d 968, 642 N.Y.S.2d 196, 664 N.E.2d 1259 (1996); Felin Assocs. v. Rogers, 38 A.D.2d 6, 326 N.Y.S.2d 413, 415 (App. Div. 1st Dep't 1971) (applying New York law) (exception where note was lost).
The reasoning behind the default rule was stated in In re Hurricane Resort Co., 30 Bankr. 258 (Bankr. S.D. Fla. 1983): "To allow the assignee of a security interest to enforce the security agreement would expose the obligor to a double liability, since a holder in due course of the promissory note clearly is entitled to recover from the obligor." Id. at 261. Thus, the default rule gives effect to the likely intent of the contracting parties which would protect the maker of a note, who also issues a mortgage, from being exposed to liability twice in respect of the same underlying debt. The consequences of a separation of a mortgage from the note is amply illustrated in the case at bar wherein the pendency of two separate actions in respect of the same underlying obligation threatens Rogers and Allsuite with double liability; a result that probably was not intended at the time that the original bargains culminating in the issuance of these respective instruments were struck. At the very least, such intent of the contracting parties to the Modification Agreement has not been pleaded in the complaint at bar.
Contrary to the view expressed by the defendants in an apparent attempt to anticipate plaintiff's argument, this Court regards New York law to be consistent with the majority default rule that an assignment of a mortgage unaccompanied by the note that it secures is a nullity, absent a contrary intent of the original contracting parties. In this regard, the New York Court of Appeals has held that
a transfer of the mortgage, without the debt, is a nullity, and no interest is acquired by it. . . . The legal maxim is, the incident shall pass by the grant of the principal, but not the principal, by the grant of the incident. So that, unless we are authorized to say, that such was the intent of the parties, we cannot hold that it did.
Merritt v. Bartholick, 36 N.Y. 44, 51 (1867) (emphasis in original); see Freidus, 769 F. Supp. at 1277-78; Kluge, 536 N.Y.S.2d at 93; Felin Assocs., 326 N.Y.S.2d at 415; Beak, 42 N.Y.S.2d at 653.
Further, the Court regards those New York cases which defendants assert to depart from this principle to fall within the rubric of construing the intent of the original contracting parties in light of the unique factual circumstances presented therein. For example, in Felin Assocs. v. Rogers, 38 A.D.2d 6, 326 N.Y.S.2d 413 (App. Div. 1st Dep't 1971), an assignment of the note along with the mortgage was an impossibility because the original note had been lost. The assignor instead issued a replacement note to the assignee. See id. at 414. The court based its holding--that physical delivery of the original note was not necessary for the subject mortgage to be enforceable, in compliance with the New York Real Property Law--on the ground that "there [was] no doubt that there [was] an intent to so transfer the interest in the note and mortgage." Id. at 415. In explicating the limited scope of its analysis, the Felin court stated, "we do agree with the plaintiff . . . [that] in ordinary circumstances the mortgagee should also be required to transfer and deliver the mortgage and the original bond or note." Id.
The defendant also cites Kawai America Corp. v. Hilton, 205 A.D.2d 1021, 613 N.Y.S.2d 989 (App. Div. 3d Dep't 1994), leave to appeal dismissed, 87 N.Y.2d 968, 642 N.Y.S.2d 196, 664 N.E.2d 1259 (1996), as authority that New York does not adhere to the majority rule. That case likewise is distinguishable from the facts alleged in the complaint at bar. In Kawai, the defendant executed a series of one-year agreements from 1984 through 1990 in connection with the shipment of merchandise. See id. at 990-91. In 1989, certain of the defendants issued a mortgage as additional security for a shipment of merchandise valued in excess of $ 50,000. See id. at 991. The defendants claimed that a promissory note was never issued to the plaintiff as a result of disputes that had arisen between the parties. See id. The court found the mortgage to be enforceable, holding that "when an obligation secured by a mortgage exists aside from the note or bond, the mortgage is not invalidated by the invalidity of the note or bond manifesting the debt." Id. The circumstances at issue in Kawai present a substantially different situation from the successive-assignment scenario in the case at bar. See id. This conclusion obtains because, in Kawai, the mortgage was held by the same party that was a promisee of a commercial transaction for the shipment of goods, the enforceability of which was independently determinable without reference to a promissory note. See id.
The plaintiff does not disagree with the above analysis of the law but contends that its status as holder of the note in question may be construed from its allegation in the complaint that the RTC assigned its interest in and to the mortgage in question to 5-Star by Assignment of Mortgage dated January 11, 1995. See Compl. P 31. Specifically, in its complaint, 5-Star cited Exhibit F thereof for reference to such assignment. See id. That exhibit, entitled "Assignment of Mortgage or Beneficial Interest in Deed of Trust" [the "Assignment"], includes the following language:
For value received, the undersigned assignor . . . does hereby grant, bargain, sell, assign, transfer and convey to the following assignee: Five Star Management . . . all of Assignor's right, title and interest in and to that certain Mortgage . . . which encumbers the real property . . . together with all the indebtedness currently due and to become due under the terms of any promissory note or evidence of indebtedness secured thereby.
Compl. Ex. F, at 1 (emphasis added). According to the plaintiff, because the Assignment explicitly states that all the indebtedness secured thereby was assigned along with the mortgage, "5-Star clearly has alleged its possession of the Note." Pl.'s Mem. of Law, at 5.
The chief difficulty with the plaintiff's argument is that the factual inference which it requests the Court to draw--that it has possession of the Note--is contradicted by its principal's admission in a judicial proceeding of which this Court has taken judicial notice. The Court therefore regards it to be inappropriate to draw this inference in favor of the plaintiff on the present motion to dismiss absent an express allegation in the complaint, made in accordance with Fed. R. Civ. P. 11, that supports it. Moreover, the complaint does not allege that the promissory note in question has been lost or destroyed so as to prevent Rogers from being exposed to double liability in respect of the same underlying obligation. See Felin, 326 N.Y.S.2d at 415 (where original note was lost and therefore rendered impossible to negotiate, mortgage securing such note was enforceable). Furthermore, the complaint does not allege that the original contracting parties, in entering into the Modification Agreement in 1991, specifically intended to expose Rogers and Allsuite to double liability, contrary to the default rule, in the event that different parties came into possession of the note and the mortgage in question. In view of these circumstances, the Court regards the better route to be to dismiss plaintiff's complaint against defendants Rogers and Allsuite with leave to file an amended complaint. Such amended complaint must be served and filed within 45 days of the date that this Memorandum and Order is docketed, and should give proper regard to both the analysis stated herein and the parol evidence rule.
For the foregoing reasons, the Court enters the following orders in this action:
1. Defendant Allsuite's motion to dismiss this action against it for lack of personal jurisdiction is DENIED.
2. Defendants Rogers' and Allsuite's motion to dismiss the complaint for failure to state a claim is GRANTED. Said dismissal shall be with leave to file an amended complaint, which must be served and filed within 45 days of the date that this Memorandum and Order is docketed.
3. In the event that plaintiff does not file an amended complaint within the time parameters established by the Court, plaintiff shall promptly notify the Court in writing of its decision to that effect and state whether it wishes to continue this action against the other named defendants who have not joined in the subject motions to dismiss. Failure to notify the Court in accordance herewith will result in the dismissal of this action in its entirety without prejudice, as against all defendants, for want of prosecution.
Joanna Seybert, U.S.D.J.
Dated: Uniondale, New York
September 25, 1996