United States District Court, S.D. New York
March 9, 2004.
UNITED STATES OF AMERICA, Plaintiff -v.- SAMUEL A. ABADY, Defendant
The opinion of the court was delivered by: SIDNEY STEIN, District Judge
OPINION & ORDER
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
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
$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
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
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.
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
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
C. Defendant Has No Valid Defenses to His Proven Indebtedness
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
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
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
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
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
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.
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
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
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.