United States District Court, S.D. New York
OPINION & ORDER
A. ENGELMAYER, District Judge
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.
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.
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.
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.
History of the Resort and the Loans Made to It
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.
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.
The $4.5 Million PRIF Loan and Snowdance's
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.
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.
The Assignment to MFW and the AFA
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.
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.
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”).
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
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
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.
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).
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).
Snowdance's Default on Its Obligations Under the AFA and
MFW's Reinstitution of the Vermont Foreclosure
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.
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 ...