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United States District Court, S.D. New York

March 9, 2004.


The opinion of the court was delivered by: SIDNEY STEIN, District Judge


The United States of America has brought this action to recover $21,287.61 loaned to defendant Samuel A. Abady while he was a student and which, according to the government, he has failed to repay. The parties have now each moved for summary judgment in their respective favors. For the reasons set forth below, plaintiff has shown that there is no triable issue of fact and that it is entitled to summary judgment as a matter of law.

I. Background

  Samuel Abady received loans from the State of Virginia to attend the University of Pennsylvania law school from 1978 to 1981. (Def.'s Decl. Supp. Not. Mot. ("Def.'s Decl."), ¶ 2; Pit's Statement Pursuant to Local Rule 56.1 ("Plt's 56.1 Statement"), ¶ 1; Zebrowski Decl., Exh. B). Virginia Education Loan Authority ("VELA") was the original lender, and the loans were — backed by, and then assumed by, the Virigina State Education Assistance Administration ("VSEAA"). (Pit's 56.1 Statement, ¶ 3; Zebrowski Decl., Exh. B). They were then in turn reinsured by the United States Department of Education, and the United States of America now seeks to recover on behalf of the Department of Education. (Id.). Those loans, for a total sum of Page 2 $14,300, became due nine months after the borrower's estimated date of graduation, with an annual interest rate of seven percent. (Pit's 56.1 Statement, ¶¶ 1, 2).

  In April 1985 — sometime subsequent to Abady's graduation from law school — the VSEAA filed a lawsuit in the Civil Court of the City of New York, based on unpaid promissory notes, to recover $17,875.00, which was comprised of principal plus interest and attorneys' fees. Abady raised several defenses, including lack of personal jurisdiction and the wrongful rejection of payment by him to VELA, which he claimed to have tendered in 1981. (Def's Decl., ¶¶ 18, 30). Abady also claimed that the sum of the loan was improperly calculated.

  The state court action was resolved by a written stipulation and agreement that provided that the state court action was "hereby discontinued and settled with prejudice" on certain terms. (Def.'s Dec!., Exh. 12). In that stipulation, in relevant part, Abady agreed to "bring[] the arrearages current, as if the loan had been paid to the date according to the terms of its instruments" by February 24, 1986 and that the "defendant shall continue to pay out the loan according to the periodic payment schedules set forth in the loan instruments," (Def s Decl., Exh. 12, ¶¶ 4, 5). VSEAA agreed to supply Abady with "mailing envelopes and notices" for him to make periodic payment, (Def's Decl., Exh. 12 ¶ 3). The stipulation also provided that the puipose of the stipulation was to "restore the status quo under the loan instruments as if no lawsuit had been started" and that "[it] shall not operate to or be construed as in any way altering the terms of the loan instruments between the parties." (Id.)

  Abady paid the amount of $7,471.80 to bring the arrears current as of the date of the stipulation. (Def's Decl, ¶ 41, Exh. 13). He subsequently paid $166.04, bringing the total paid to $7,637.84. (Def.'s Decl., ¶ 41). Abady claims that VSEAA and its assignees are in breach of the Page 3 settlement agreement because they did not mail him the appropriate "mailing envelopes and notices." (Def's Decl., Exh. 12). Abady moves for summary judgment on those grounds, because "the Government's assignor was paid all it was entitled to for the loan at issue" in February of 1986, and because this suit is barred by collateral estoppel and res judicata based on the state court adjudication. (Def's Not, Mot., p. 1). When Abady moved for summary judgment on September 10, 2003 he neither served nor filed the required Rule 56.1 statement of disputed facts with that motion. The United States claims that Abady owes the sum of $21,287.61 on the original promissory note, and $1.35 per day after October 31, 2003. (Plt.'s 56.1 Statement, ¶ 9). Plaintiff cross-moves for summary judgment in that amount.

  On January 12, 2004, oral argument was held on these motions. At the commencement of the argument, Abady presented to the Court and plaintiff for the first time a document entitled "Defendant's Statement Made Pursuant to Local Rule 56.1." That Rule 56.1 statement was submitted four months after defendant's motion was made. Moreover, Abady was aware of his obligation to file such a statement because 1) he is an attorney and is presumed to be familiar with the local rules of this district and 2) opposing counsel notified him of his failure to file such a statement on the first page of the government's "Memorandum of Law in Opposition to the Defendant's Motion to Dismiss," dated October 31, 2003, Therefore, Abady's untimely Rule 56.1 statement will not be accepted in support of his motion and in opposition to the government's cross-motion.

  At the time of the oral argument on January 12, 2004, this Court represented that no decision would issue on these motions for one week, in order to give the parties an opportunity to resolve the action consensually. Defendant requested additional time, and the Court agreed to Page 4 reserve disposition on the motions until February 6, 2004. On February 4, 2004, Abady requested a further thirty days in order to attempt to resolve this action, and the Court granted the parties until March 5, 2004 to submit a stipulation of settlement; the parties were informed that a decision would issue thereafter if no stipulation of settlement were submitted for signature. To date, no consensual resolution has been submitted to the Court.

 II. Analysis

 A. Motions To Be Treated as Summary Judgment Motions

  Although Abady styles his motion one "to dismiss this action and for summary judgment," he has filed an affidavit containing extrinsic materials outside the pleadings and has annexed almost a score of exhibits to that affidavit. Many of the exhibits Abady attaches and refers to — such as handwritten phone messages and letters from non-parties to Abady — cannot be presented in a motion to dismiss because they fall outside the pleadings. Because the Court cannot consider those materials in a motion to dismiss, this motion is converted to a motion for summary judgment. Fed.R.Civ.R 12(b), Fed.R.Civ.P. 56; see also Barksdale v. Robinson 211 F.R.D. 240, 242 (S.D.N.Y. 2002); Friedl v. City of New York 210 F.3d 79, 83 (2d Cir. 2000) (quoting Fonte v. Bd. of Managers of Continental Towers Condominium. 848 F.2d 24, 25 (2d Cir. 1988).


B. Defendant's Failure to File a Rule 56.1 Statement in Support of His Motion for Summary Judgment, and in Opposition to Plaintiffs Cross-Motion for Summary Judgment
  Defendant failed to serve "a separate, short and concise statement of material facts as to which the moving party contends there is no genuine issue to be tried" until four months after his motion was served. Local Rules of the United States District Courts for the Southern and Page 5 Eastern District of New York, 56.1. When a moving party fails to file such a Rule 56.1 statement, it is within the discretion of the court to either overlook the failure or to deny the motion. See Stone v. 866 3rd Next Generation Hotel. L.LC., No. 00 Civ. 9005, 2002 WL 482558, at *1 n.2 (S.D.N.Y. Mar. 29, 2002): see also Holtz v. Rockefeller & Co., Inc., 258 F.2d 62, 73 (2d Cir. 2001); AIM Int'l Trading. L.LC. v. Valcucine S.p.A., 2003 WL 21203503, at *11 (S.D.N.Y. May, 22 2003). Defendant's motion will not be denied simply for failure to file a Rule 56.1 statement.

  Abady has also failed to file the required Rule 56.1(c) statement in opposition to the plaintiffs cross-motion for summary judgment. Rule 56.1(c) requires a party opposing summary judgment to file a Rule 56.1 statement. (Id.). The consequence of this failure is that "[a]ll material facts set forth in the statement required to be served by the moving party will be deemed to be admitted unless controverted by the statement required to be served by the opposing party." (Id.); see e.g. Gubitosi v. Kapica. 154 F.3d 30, 31 n.1 (2d Cir. 1998); Versace v. Versace. 2003 WL 22023946, at *1 (S.D.N.Y. Aug. 27, 2003). However, a district court must ensure that there is support in the record for facts contained in unopposed Rule 56.1 statements before accepting those facts as true, Giannullo v. City of New York. 322 F.3d 139, 140-43 (2d Cir. 2003). Because plaintiff has supported its Rule 56.1 statement with the promissory notes signed by Abady, and with the calculation of Abady's present indebtedness, the statement is supported by the record and the facts therein will be deemed admitted.*fn1

 C. Defendant Has No Valid Defenses to His Proven Indebtedness Page 6

  The government has provided proof of Abady's indebtedness in the amount of $21,287.61 on the loans underlying this action. (Plt.'s 56.1 Statement, Exh. A, B). This sum represents the payments due subsequent to his payment of $7,637.84 in 1986. Defendant does not claim to have paid any amount due on the promissory note after the two 1986 payments. The government's proof of indebtedness is sufficient to show defendant's obligation to pay. Hannah v. Kittay. 589 F. Supp. 1042, 1046 (S.D.N.Y. 1984) (granting summary judgment on promissory notes showing indebtedness, notwithstanding defendant's attempts to "frolic and detour" in moving papers). Here, as in Kittay. there is no dispute as to the validity of the original promissory note, nor is there any dispute as to the amount actually paid by defendant.*fn2 The government has thereby shown execution and default, and summary judgment is appropriate. See Nutmeg Fin. Serv., Inc. v. Cowden. 524 F. Supp. 620, 621 (E.D.N.Y. 1981) ("[S]ummary judgment is appropriate upon a showing of execution and default.").

  Abady has presented a number of defenses and justifications for his failure to pay this student loan. However, none of those defenses are legally sufficient to defeat the government's motion for summary judgment The Court will address each of defendant's arguments in turn.

  1. VELA's Failure to Accept Payment or Adjust the Sums Due

  In his moving papers, Abady discusses at length the history of this loan, reciting his struggle to pay the loan in 1981, VELA's rejection of that payment and subsequent refusal to correct the sum due. (Defs Decl, ¶¶ 18-27). None of these statements concerning the history of Abady's interactions with VELA is relevant to the present action. In 1986, when defendant Page 7 entered into a settlement of the state court action with VSEAA, he agreed to continue paying the sums due on his loans. (Def.'s Decl, Exh. 12, p. 1). Moreover, the stipulation specifically reaffirms the operation of the promissory notes to govern Abady's duty to repay the loans. (Id.), Additionally, Abady does not claim that he actually paid the sums due at any time. Therefore, he does not contest the allegation that he owed the money at that time, and states that he has only paid $7637.84 to date. (Def's Decl., ¶ 53).


2. Res Judicata and Collateral Estoppel Do Not Bar This Action
  Abady believes that because the promissory notes formed the underlying basis for New York state court litigation in 1986 (Virginia State Education Assistance Authority v. Abady. Index No. 2648/81; Def.'s Decl., Exh. 9), the government cannot now use those loans to bring this lawsuit because it is barred by the doctrines of res judicata and collateral estoppel. Defendant's arguments fail because the present lawsuit does not raise the same issues as the 1986 lawsuit.

  a. Res Judicata Does Not Bar this Action

  Pursuant to the doctrine of res judicata, also known as "claim preclusion," "`[a] final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action.'" Storey v. Cello Holdings. L.L.C. 347 F.3d 370, at 380 (2d Cir. 2003);*fn3 (quoting St. Pierre v. Dyer, 208 F.3d 394, 399 (2d Cir. 2000)); see also Israel v. Carpenter. 120 F.3d 361, 365 (2d Cir. 1997) (preclusive effect given to claims Page 8 resolved in a stipulation). The New York state court action in 1986 was discontinued with prejudice as to the claims asserted in that action. The claims asserted in that action related to the principal and interest past due on the loan at that time. In resolving that action, the parties agreed that the stipulation restored the "status quo under the loan instruments." (Def.'s Decl. ¶ (6). The stipulation was not a waiver of the debt. Currently, plaintiff seeks repayment on the loan of sums due subsequent to the stipulation. Those claims were not, and could not have been, brought at the time of the 1986 state court lawsuit; therefore, res judicata does not operate to bar those new claims. See Storey, 347 F.3d at 380.

  b. Collateral Estoppel Does Not Bar This Action

  As set forth above, the present lawsuit was brought because Abady failed to pay the sums due on the promissory notes subsequent to the 1986 lawsuit. The doctrine of collateral estoppel, or "issue preclusion," applies to bar the relitigation of issues of fact or law already fully litigated and determined between the same parties in a previous action. Schiro v. Farley, 510 U.S. 222, 232 (1994); Santini v. Conn. Hazardous Waste Mgm't. 342 F.3d 118, 127 (2d Cir. 2003). Collateral estoppel will only apply to bar relitigation of an issue already decided if (1) the issues in both proceedings are identical, (2) the relevant issues were actually litigated and decided in the prior proceeding, (3) there was a full and fair opportunity for litigation, and (4) the issues were necessary to a valid judgment on the merits. See Leather v. Eyck. 180 F.3d 420, 424 (2d Cir. 1999); Vega v. State Univ. of NT. Bd. of Trustees, 67 F. Supp.2d 324, 335 (S.D.N.Y. 1999). In this case, the issues in the prior proceeding are not identical to the issues now underlying plaintiffs claims. Therefore, collateral estoppel does not apply to bar this action.

  3. Abady's Payments in 1986 Did Not Repay the Loans Page 9

  Defendant states that he paid over $7000 in 1986, and that sum exceeded the principal he owed. He believes his payment exceeded the principal based on notices he received in 1994 for principal amounts of $2,472.44, $2,126.29, and 2,472,43. (Def.'s Decl. ¶ 44). He indicates a belief that the total of those notices, $7071.16, represents the total amount of his original indebtedness. (Id.). Based on those promissory notes, he believes the debt should be considered discharged, and he should be granted summary judgment. The 1994 promissory notes, however, represent the principal still due on his loans after the deduction of the 1986 payment of $7,471.80 from the principal.

  Abady also seems to argue that VELA decided, in 1986, to forgive the interest on the loans and accept the $7000 as payment in full, but he offers no support for that surmise. (Def's Decl. ¶¶ 43, 54). Moreover, the government has provided three promissory notes for the original sum of $14,300. (Plt's 56.1 Statement, Exh. A). Therefore, defendant's contention that he owed only $7000, unsupported by any other proof, is wholly inadequate to raise a reasonable doubt as to the sufficiency of the government's proof of indebtedness.*fn4 At the summary judgment phase, the non-moving party must offer sufficient evidence on a factual dispute to allow a reasonable finder of fact to find in its favor. Mandell v. The County of Suffolk. 316 F.3d 368, 377 (2d Cir. 2002). Abady has not offered any evidence at all that he owed less than $14,300 in 1981, nor has he offered any evidence to support his contention that VELA did forgive or should have forgiven the interest on that sum. Page 10


4. VSEAA's Failure to Provide Invoices and Mailing Envelopes Is Not a Material Breach of the 1986 Stipulation
  Abady asserts that he does not need to repay his educational loans because VSEAA is in material breach of the settlement agreement. First, he states that it failed to change his loan status from "default to active" pursuant to clause two of that agreement. Second, he claims that it failed to send him any notices, as it was bound to do by paragraph three of the stipulation. Abady offers no proof of either contention. In fact, he states that he was sent notices in 1994, which indicates that he was made aware of his continuing indebtedness. (Def.'s Decl. ¶ 44). Even if VSEAA did breach the agreement by failing to send invoices to Abady, that breach would not excuse Abady's obligation to repay the loan. Although there is a general rule that a party who first breaches a contract cannot demand performance from the other party, "a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange." Restatement (Second) of Contracts ¶ 229. The non-performance of a contractual condition should be excused where "the condition would cause a disproportionate forfeiture" as long as the non-performance is not a material breach. Williston on Contracts. ¶ 43:13 (4th ed. 2003).

  VSEAA would suffer a disproportionate forfeiture if Abady is not required to repay his loans simply because he did not receive notices and the loan status was not reset. Therefore, as long as VSEAA's breach is not material, it will not excuse Abady's non-performance of his obligation to repay those loans. Publicker Chemical Corp. v. Belcher Oil Co., 792 F.2d 482 (5th Cir. 1986). Williston on Contracts § 43:5 (4th ed. 2003V VSEAA's breach was not material. "Materiality goes to the essence of the contract. That is, a breach is material if it defeats the Page 11 object of the parties in making the contract and *deprive[s] the injured party of the benefit that it justifiably expected.'" ESPN, Inc. v. Office of the Comm'r of Baseball 76 F. Supp.2d 416, 421 (S.D.N.Y. 1999) (quoting E, Alien Farnsworth, Farnsworth on Contracts § 8.16 (3d ed. 1999)); see also Frank Felix Assocs. Ltd. v. Austin Drugs. Inc., 111 F.3d 284, 289 (2d Cir. 1997); Times Mirror Magazines. Inc. v. Field & Stream Licenses Co., 103 F. Supp.2d 711, 731 (S.D.N.Y. 2000). VSEAA's breach, if any, did not deprive Abady of any benefit of the original loan contract, nor of the settlement stipulation. First, he received the full amount of the loans VSEAA seeks repayment on some twenty years ago. Second, in 1986, he reaped the benefit of entering a settlement agreement to repay the loans instead of being subjected to a court judgment. Abady suffered little, if any, loss when VSEAA failed to mail him notices and invoices for a debt that Abady had already acknowledged.

  Finally, even if those failures could be construed as material breaches of the settlement agreement, those breaches would not relieve Abady of his obligation to repay the sums owed on the original promissory notes. The terms of the settlement clearly state that the purpose of the settlement was to restore the status quo between the parties, and that payments in the future should be governed by the original instruments. (Def.'s Decl., Exh, 12, ¶ 6-7). Therefore, no breach of the settlement would relieve Abady of his obligation to continue to repay his loans, based on the original promissory notes, after the date of the settlement. Page 12

 III. Conclusion

  For the reasons set forth above, plaintiffs motion for summary judgment is granted. Defendant's motion to dismiss and for summary judgment is denied. The Clerk of Court is directed to enter judgment in the sum of $21,287.61 plus $1.35 per day since October 31, 2003 against defendant.


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