The opinion of the court was delivered by: Larimer, Chief Judge.
INTRODUCTION AND PROCEDURAL BACKGROUND
This is a diversity action arising out of a series of related
financial transactions among plaintiffs, Ben and Shirley Harris,
defendant/third-party plaintiff Key Bank National Association,
d/b/a Key Bank, Key Bank of New York, and Key Bank of Central
New York ("Key Bank" or "the bank"), and third-party defendants
1564 St. Paul Street Partners, Lass Associates a/k/a "Last
Associates," Sanford Liebschutz, Edward J. After, Martin L.
Schuster, Jack Schuster and Bell Schuster ("the partners"). The
complaint asserts various claims under New York law against Key
Bank, all relating in one way or another to plaintiffs'
allegation that Key Bank mishandled collateral that plaintiffs
had pledged to secure a loan, causing plaintiffs to lose the
value of the collateral, and to suffer various other
On March 14, 2000, the court issued a Decision and Order which
granted in part Key Bank's motion for summary judgment by
dismissing plaintiffs' claim for constructive fraud, but which
denied Key Bank's motion to dismiss plaintiffs' claims for
negligence, breach of fiduciary duty, and breach of the duty of
good faith. Harris v. Key Bank Nat. Ass'n, 89 F. Supp.2d 408
Key Bank filed a third-party complaint against the partners on
June 2, 2000, alleging three causes of action under New York law
for rescission, contribution and indemnity, and unjust
enrichment. The partners have now moved for summary judgment
dismissing the third-party complaint. Key Bank has cross-moved
for summary judgment dismissing plaintiffs' remaining claims.
In May 1985, in a completely separate transaction, plaintiffs
borrowed $150,000 from Key Bank. Plaintiffs executed a demand
note for the benefit of the bank in the amount of $150,000 ("Key
Bank Note"). As security for that note, plaintiffs assigned to
Key Bank the $195,000 St. Paul Street Note and the second
mortgage interest that secured it.
In time, both the partners and plaintiffs began having
difficulty making their monthly payments on their respective
notes. For several years, with the blessing of plaintiffs, the
partners sent their payments on the St. Paul Street note
directly to Key Bank and not to plaintiffs, in order to fulfill
the partners' obligation to plaintiffs and plaintiffs'
obligation to the bank simultaneously. Various other proposals
concerning the parties' obligations were made and considered
over the years, but in early 1994, Key Bank sold plaintiffs' Key
Bank Note to the partners (doing business as "Lass" or "Last"
Associates) for $75,000, which was the remaining balance on the
note at that time, along with the $195,000 St. Paul Street Note
and the second mortgage interest that secured it.
In April 1994, Lass Associates demanded that plaintiffs pay
the $75,000 balance on the Key Bank Note within fifteen days.
When plaintiffs failed to do so, Lass Associates served on
plaintiffs written notice, pursuant to U.C.C. 9-505(2), that
Lass Associates proposed to retain the assigned collateral,
i.e., the St. Paul Street Note and second mortgage, in full
satisfaction of the Key Bank Note. Plaintiffs neither objected
to nor responded to this notice, although it is not entirely
clear from plaintiffs' deposition testimony and that of their
then-attorney, David Berlowitz, why that was so.
Thereafter, plaintiffs sued the partners in New York State
Supreme Court, Monroe County, to enforce the St. Paul Street
Note. The state court ruled that since the bank had repledged
the Key Bank Note to Lass Associates and Lass Associates had
foreclosed on that note, Lass Associates was now the owner of
the St. Paul Street Note, and plaintiffs did not have standing
to enforce it. Plaintiffs then brought this action against Key
Bank, alleging that the bank impaired the value of plaintiffs'
collateral when it transferred the collateral and the Key Bank
Note to Lass Associates.
I. Key Bank's Motion for Summary Judgment
Plaintiffs argue that the court should deny Key Bank's motion
for summary judgment based on the "law of the case" doctrine.
"The doctrine of the law of the case `posits that if a court
decides a rule of law, that decision should continue to govern
in subsequent stages of the same case.'" Aramony v. United Way
of America, 254 F.3d 403, 410 (2d Cir. 2001) (quoting In re
Crysen/Montenay Energy Co., 226 F.3d 160, 165 n. 5 (2d Cir.
2000), cert. denied, 532 U.S. 920, 121 S.Ct. 1356, 149 L.Ed.2d
286 (2001)). In general, a court "will only reconsider a prior
decision in the same case if there has been an intervening
change in controlling law, there is new evidence, or a need is
shown to correct a clear error of law or to prevent manifest
injustice." United States v. Sanchez, 35 F.3d 673, 677 (2d
Cir. 1994), cert. denied, 514 U.S. 1038, 115 S.Ct. 1404, 131
L.Ed.2d 291 (1995).
This principle must be followed by the district court when an
appellate court has ruled on a matter of law in the case.
See, e.g., United States v. Minicone, 994 F.2d 86, 89 (2d Cir.
1993), cert. denied, 513 U.S. 940, 115 S.Ct. 344, 130 L.Ed.2d
300 (1994). It is discretionary, however, for a court that is
considering whether to revisit its own prior decisions in the
same case. See, e.g., Lewis v. Whelan, 99 F.3d 542, 545 (2d
Cir. 1996); United States v. Uccio, 940 F.2d 753, 758 (2d Cir.
1991); Scottish Air Int'l Inc. v. British Caledonian Group,
PLC, 152 F.R.D. 18, 24-25 (S.D.N.Y. 1993). In such cases, the
application of the law-of-the-case doctrine "does not limit a
court's power to reconsider its own decisions prior to final
judgment." Sagendorf-Teal v. County of Rensselaer,
100 F.3d 270, 277 (2d Cir. 1996). See also In re PCH Assocs.,
949 F.2d 585, 592 (2d Cir. 1991); DiLaura v. Power ...