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MFW Associates, LLC v. Plausteiner

United States District Court, S.D. New York

June 2, 2017


          OPINION & ORDER

          PAUL A. ENGELMAYER, District Judge

         This decision resolves competing motions for summary judgment in this breach of contract action. The action arose from the failure of borrowers, including defendants Steven and Susan Plausteiner (the "Plausteiners"), to pay money allegedly owed in connection with loans made to develop a now-closed Vermont ski resort, the Ascutney Mountain Resort (the "Resort"). This decision also resolves the motion by plaintiff MFW Associates, LLC ("MFW") for an order of attachment of certain real property in Vermont owned by the Plausteiners, to serve as security in the event a judgment were entered against them.

         MFW brings a single claim for breach of contract, based on the Plausteiners' failure to pay monies allegedly owed to MFW under Amendment No. 1 to the Forbearance Agreement dated June 30, 2008 ("AFA"). The Court earlier denied the Plausteiners' motion to dismiss. That motion had primarily been based on the AFA's text; the Court rejected the Plausteiners' claim that it unambiguously released them from their duty, in all capacities, to pay the debt on which MFW is suing them. In support of that motion, the Plausteiners belatedly-in their reply brief-had also sought dismissal on the ground of claim preclusion (res judicata). They based that claim on a lawsuit that MFW had brought earlier in Vermont state court; they argued that MFW's bid there for a deficiency judgment precluded its breach of contract claim here. After a close analysis of Vermont law regarding deficiency judgments, the Court rejected that claim.

         The parties now cross-move for summary judgment. As on the motion to dismiss, the cross-motions implicate two sets of issues. The first is whether the AFA, either textually or as now supplemented by extrinsic evidence, establishes that the Plausteiners owe the debt in question, as MFW argues, or releases them from the duty to pay that debt, as the Plausteiners argue. The second is whether MFW's lawsuit here is barred by principles of res judicata, as the Plausteiners argue, or not, as MFW argues. Significant here, on the cross-motions, the Plausteiners have changed their basis for arguing res judicata. They now base that claim on the facts that, in the earlier Vermont lawsuit, MFW brought a breach of contract claim paralleling its claim here, and that that claim was dismissed with prejudice pursuant to an agreed-upon stipulation.

         For the following reasons, the Court holds that summary judgment to the Plausteiners is warranted on the basis of res judicata. The Court therefore does not reach the parties' competing arguments based on the text of the AFA, and denies MFW's motion to attach as moot.

         I. Background[1]

         A. Factual Background

         1. History of the Resort and the Loans Made to It

         In 1993, the Plausteiners purchased the Resort, a 750-acre ski and vacation resort in Brownsville, Vermont, at a foreclosure auction. JSF ¶ 1. Between 1993 and 1997, they were the sole owners and operators of the Resort; in 1997, they sought to improve and expand the resort and sought outside financing to do so and, to that end, formed Snowdance LLC (“Snowdance”). Id. ¶¶ 3-5. The Plausteiners were majority owners and the managers of Snowdance and were its sole officers and managers until July 2010. Id. ¶ 6. They were also the majority members of Snowdance Realty LLC (“Realty”), Snowdance Ski Company, LLC (“Ski”), and Snowdance Hotel Company, LLC (“Hotel”), all formed in 1997, each of which were minority owners of Snowdance. Id. ¶ 7. The Plausteiners controlled Realty, Ski, and Hotel at all relevant times. Id. Dan Purjes initially acquired a 25% interest in Snowdance pursuant to a membership agreement dated May 7, 1998. Id. ¶ 8.

         Snowdance obtained various loans to help it make improvements to the Resort. In May 2000, Snowdance sought to purchase a Garaventa CTEC High-Speed Quad Chairlift (the “Lift”). Id. ¶ 10. The purchase price of the Lift was $2.4 million but Snowdance was able to finance only $1.4 million. Id. To pay for the Lift, Purjes loaned Snowdance a $1 million bridge loan, evidenced by a promissory note dated May 18, 2000 and executed by Snowdance. Id. ¶ 11.

         2. The $4.5 Million PRIF Loan and Snowdance's Default

         Later, Snowdance obtained a $4.5 million loan from the Palisades Regional Investment Fund (PRIF Ascutney, LLC) (the “PRIF Loan”), pursuant to a promissory note dated May 19, 2005. Id. ¶¶ 14-15. The Plausteiners personally guaranteed the PRIF Loan and agreed to put a mortgage on their personal residence on Coaching Lane in Brownsville, Vermont as additional collateral for that loan, which was memorialized in a Guaranty Agreement dated May 19, 2005. Id. ¶ 16. PRIF also required the Plausteiners (along with Realty, Ski, and Hotel) to pledge their membership interests in Snowdance to PRIF in the event of a default on the PRIF Loan. Id. ¶ 18. This agreement was memorialized in a Financial Interest Pledge and Security Agreement dated May 19, 2005 (the “Pledge Agreement”). Id. The PRIF Loan documents included documents totaling 457 pages (the “Transaction Documents”). Id. ¶ 19. Under a separate agreement dated May 19, 2005 with a different lender, Textron Financial Corporation (“Textron”), PRIF received a first priority mortgage on the Resort's real property. Id. ¶¶ 12-13, 20.

         In or around December 2007, Snowdance defaulted on its obligations under the PRIF Loan and PRIF began foreclosure proceedings. Id. ¶ 21. PRIF then agreed to forbear enforcement of its rights in connection with Snowdance's default for a period of time; this was reflected in a Forbearance Agreement dated December 2007. Id. ¶ 22. In or around February 2008, however, Snowdance defaulted on the Forbearance Agreement, and PRIF resumed its foreclosure action on the PRIF Loan. Id. ¶ 23. But, on June 30, 2008, Snowdance entered into a second Forbearance Agreement with PRIF. Id. ¶ 24.

         3. The Assignment to MFW and the AFA

         In or around September 2008, Steven Plausteiner met with Purjes at Purjes's home in New York City to discuss ways to pay off the PRIF Loan. Id. ¶ 27. The balance of the PRIF Loan at that time was about $2.35 million but had been negotiated to $1.85 million on the condition that the amount be paid immediately in cash. Id. ¶ 28. Purjes and Steven Plausteiner then reached an understanding about purchasing the remaining balance of the PRIF Loan. Id. ¶ 29.

         Under this agreement, the Plausteiners agreed to pay $1 million to PRIF, in exchange for which the Plausteiners would receive a preferred membership interest of $1 million that would be senior to all other equity interests in Snowdance. Id. ¶ 30. Purjes agreed to purchase the remainder of the PRIF Loan through MFW, a company he would establish for this purpose, on the condition that MFW would take the place of PRIF and assume its first priority lienholder position with respect to the Resort's real property, along with holding a senior preferred equity position in Snowdance. Id. ¶ 31. As a result, the Plausteiners' payment to PRIF was unsecured, instead being in exchange for a senior preferred equity position in Snowdance. Id. The Plausteiners demanded, however, as consideration for the payment to PRIF, that MFW release the mortgage on the Plausteiners' personal residence on Coaching Lane, which had been part of the security for the PRIF Loan, and MFW agreed to do this. Id. ¶ 32.

         To execute this agreement, Purjes formed MFW in October 2008. Id. ¶ 34. At all relevant times since, Purjes has served as its managing member. Id. The Plausteiners, in October 2008, paid $1 million to PRIF to reduce the balance of the PRIF Loan. Id. ¶ 35. And, on October 10, 2008, MFW purchased the PRIF Loan and PRIF's interest was assigned to it such that MFW stood in the shoes of PRIF with respect to the PRIF Loan and the Forbearance Agreement. Id. ¶ 36. In connection with MFW's purchase of the PRIF Loan, as a condition of MFW's forbearance, MFW drafted and entered into new pledge agreements dated October 10, 2008 with the Plausteiners and with Realty, Hotel, and Ski, each of whom pledged their equity interests to secure the PRIF Loan. Id. ¶ 37; MFW 56.1 ¶ 24 & Ex. 10 (Dkt. 110-10) (the “MFW Pledge Agreements”).

         On October 10, 2008, MFW, now the assignee of the obligations due under the PRIF Loan, entered into a new forbearance agreement with Snowdance, the Plausteiners, Realty, Hotel, and Ski, titled “Amendment No. 1 to the Forbearance Agreement dated June 30, 2008” (the “AFA”). Id. ¶ 38. The AFA-a key document here-extended the forbearance period for payments due under the PRIF Loan to October 1, 2009. Id. ¶ 39 & Ex. 1 (“AFA”).

         The AFA states that it was entered into “by and between” the following parties:

MFW ASSOCIATES, LLC . . . (the “Lender”), who is the successor and assignee of PRIF ASCUTNEY, LLC (“PRIF”), and SNOWDANCE LLC . . . (the “Borrower”), STEVEN PLAUSTEINER . . ., SUSAN PLAUSTEINER . . . (each sometimes referred to herein as a “Guarantor” individually, jointly and severally as the “Guarantors”), SNOWDANCE SKI COMPANY, . . . SNOWDANCE HOTEL COMPANY, . . . SNOWDANCE REALTY COMPANY, . . . STEVEN PLAUSTEINER and SUSAN PLAUSTEINER, (collectively, the “Pledgors”, and together with the Borrower and the Guarantors, are referred to herein as the “Debtor”).

AFA at 1. The AFA provides that it “shall be deemed incorporated into and made part of the Transaction Documents.” Id. § 10. The AFA defines the Transaction Documents to encompass the PRIF Loan and the associated promissory note, the agreement for the sale of the PRIF Loan to MFW and the associated assignment, and “all instruments, documents, mortgages, forbearance agreements and other agreements executed in connection therewith or related thereto, and amendments modifications, or supplements thereto.” AFA ¶ 1.

         Section 5(a) of the AFA provides that, to satisfy the obligations under the PRIF Loan, “Debtor shall pay” to MFW, by October 1, 2009, the reduced amount of $850, 000.00, plus 20% interest calculated from the date of the agreement and the date of payment, plus reasonable fees, costs, and expenses incurred by MFW as a result of enforcement of the Transaction Documents between the date of the agreement and date of payment. AFA § 5(a). But, if the Debtor did not pay that reduced amount by October 1, 2009, § 5(b) provides that MFW's agreement to accept the reduced balance would become “null and void, ” and “Debtor shall pay to [MFW] the entire outstanding Debt . . . which shall become due and payable immediately, ” which includes “all accrued and unpaid interest thereon to date, plus all fees, costs, and expenses.” AFA § 5(b). Section 5(b) provides that “Debtor also acknowledges that it is obligated to pay any additional legal fees incurred by [MFW] through the collection of the entire indebtedness owed by Debtor pursuant to the terms of the Transaction Documents.” AFA § 5(b).

         The AFA also released the mortgage on the Plausteiners' personal residence that had served as part of the security for the PRIF Loan. AFA § 8(e). The AFA also called for the execution of the MFW Pledge Agreements, under which the Plausteiners and Realty, Hotel, and Ski would pledge their membership interests in Snowdance to MFW: Section 8(a) provides that the Debtor “shall executed [sic] and deliver to [MFW] Limited Liability Membership Pledge Agreements from Steven Plausteiner, Susan Plausteiner, [Ski], [Hotel], and [Realty] pledging all of the limited liability common membership interests owned by each person or entity in Snowdance.” Id. § 8(a). Additionally, § 8(e) provides that

[MFW] hereby releases Guarantors, Steven and Susan Plausteiner, from their obligations under the Transaction Documents and from any guaranty relating in any way to the Transaction Documents, including but not limited to, (i) the Guaranty dated May 19, 2005 given by the Guarantors in favor of PRIF and (ii) the Limited Guaranty dated May 19, 2005 given by the Guarantors in favor of PRIF (together the “Guarantees”). The Guarantees are hereby terminated and of no further force or effect. Furthermore, this release shall also apply to the mortgage deed granted by Guarantors to Lender for the real property situated at 701 Coaching Lane, Brownsville, Vermont, and Lender agrees to take all reasonable actions necessary to cause such mortgage deed to be released and for such release to be recorded in the appropriate governmental offices. This release shall only apply to Guarantors.

Id. § 8(e).

         4. Snowdance's Default on Its Obligations Under the AFA and MFW's Reinstitution of the Vermont Foreclosure Action

         Snowdance later defaulted on its payments due under the AFA. See JSF ¶ 46. MFW then reinstituted the foreclosure proceeding previously begun by PRIF in Vermont state court (the “Vermont Foreclosure Action”). Id. The original PRIF complaint and PRIF's or MFW's subsequent complaints named Snowdance and others as defendants; the Plausteiners were not ever named as defendants. See MFW 56.1, Exs. 7, 11-13.

         On January 25, 2010, MFW filed a Supplemental Complaint in the Vermont Foreclosure Action, in which it sought to foreclose on the membership interests in Snowdance pledged in the MFW Pledge Agreements by the Plausteiners, Realty, Hotel, and Ski, and, as such, named the Plausteiners and Realty, Hotel, and Ski as defendants. JSF ¶ 47 & Ex. 2 (“Supplemental Complaint”). The Supplemental Complaint sought a court order for a judicial sale of the pledged membership interests. It also alleged that if the sale of the LLC interests in Snowdance was less than the debt those interests secure, then MFW would be entitled to a deficiency judgment against the “Guarantors, ” which the Supplemental Complaint had defined collectively to include the Plausteiners, Realty, Hotel, and Ski. Id. ¶¶ 48-50. The Supplemental Complaint also brought a claim for breach of contract of the AFA. That claim alleged that, “By failing to pay when due, Snowdance LLC is in breach of [the AFA] and the [original Forbearance Agreement with PRIF]; it further alleged that, “By failing to pay when due, Guarantors [defined to include the Plausteiners] are in breach of their Pledge Agreements [defined as the MFW Pledge Agreements executed in connection with the AFA].” Supplemental Complaint ¶¶ 19, 24-25. MFW further alleged in its breach of contract count that, “As a result of the breaches, [MFW] has suffered damages. Moreover, [MFW] is now entitled to foreclose on the property described in the Pledge Agreements [the Plausteiners' and Realty's, Hotel's, and Ski's ...

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