Bank of America, N.A. v. Timothy G. Fay ( 2020 )

December 11, 2020
Supreme Court
No. 2019-126-Appeal.
No. 2019-139-Appeal.
(PC 16-1618)
Bank of America, N.A. :
v. :
Timothy G. Fay et al. :
NOTICE: This opinion is subject to formal revision
before publication in the Rhode Island Reporter. Readers
are requested to notify the Opinion Analyst, Supreme
Court of Rhode Island, 250 Benefit Street, Providence,
Rhode Island 02903, at Telephone (401) 222-3258 or
Email opinionanalyst@courts.ri.gov, of any typographical
or other formal errors in order that corrections may be
made before the opinion is published.
Supreme Court
No. 2019-126-Appeal.
No. 2019-139-Appeal.
(PC 16-1618)
Bank of America, N.A. :
v. :
Timothy G. Fay et al. :
Present: Suttell, C.J., Goldberg, Flaherty, and Robinson, JJ.
OPINION
Chief Justice Suttell, for the Court. The defendants, Timothy Fay (Fay) and
David Patrick (Patrick) (collectively the guarantors or defendants), appeal from the
entry of final judgment in favor of the plaintiff, Bank of America (the bank or
plaintiff), in this consolidated appeal. The defendants raise three arguments on
appeal. First, the defendants contend that the hearing justice erred in granting
summary judgment in favor of the bank as to the defendants’ liability. Second, the
defendants argue that the hearing justice erred in granting summary judgment in
favor of the bank by finding that the defendants were bound by the Connecticut
Superior Court’s deficiency calculation. Third, the defendants assert that the hearing
justice erred in failing to conduct a hearing on Fay’s motion to amend his answer.
For the reasons set forth herein, we affirm the judgment of the Superior Court.
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I
Facts and Travel
Fay and Patrick were the sole principals of Stonestreet Hospitality Realty
Company, LLC (Stonestreet), a Connecticut Limited Liability Company; the pair
owned 70 percent and 30 percent of the membership interests, respectively. On May
15, 2008, Stonestreet executed a promissory note (the note) to the bank in the amount
of $21,808,000 with the intent to construct a hotel in Montville, Connecticut (the
property), near Mohegan Sun casino. The note was secured by a first-position
mortgage on the property and was associated with a senior construction and interim
loan agreement (the loan agreement). On the same day, the guarantors, in their
individual capacities, executed a guaranty of the loan agreement (the guaranty). The
guaranty included a choice-of-law clause indicating that it would be governed by
Rhode Island law, without giving effect to principles of conflict of laws. Further,
the guaranty was executed in Rhode Island; Fay and Patrick are Rhode Island
residents, and the bank is “a national banking association organized under federal
law with a place of business in Providence, Rhode Island.”
The loan agreement set forth a maturity date of November 21, 2014 for the
note, which Stonestreet failed to pay. In September 2015, the parties entered into a
loan forbearance agreement (the forbearance agreement) under which Stonestreet
and the guarantors acknowledged: (1) Stonestreet’s failure to honor its promise
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under the loan agreement to pay in a timely fashion; (2) that the loan agreement was
still in effect; and (3) that a new maturity date would be set for December 15, 2015.
The forbearance agreement also included a choice-of-law clause indicating that it
would be governed by Connecticut law. Again, Stonestreet failed to pay the note.
Following the failure to pay, the bank filed complaints in Connecticut
Superior Court and in Rhode Island Superior Court. For clarity, we will recite the
facts of each state’s proceeding separately.
A
Connecticut Proceedings
In May 2016, the bank filed a foreclosure complaint in Connecticut Superior
Court seeking to foreclose its mortgage on the property. The guarantors were not
named parties in the Connecticut proceedings.
In September 2017, the Connecticut hearing justice adjudicated the amount
due and entered a judgment of strict foreclosure on the matter for $23,108,768.17,
thereby quantifying the amount due under the note, and he set Stonestreet’s “law
days” to commence on October 31, 2017.1 The parties stipulated that the facts
1
Black’s Law Dictionary defines strict foreclosure as “[a] rare procedure that gives
the mortgagee title to the mortgaged property—without first conducting a sale—
after a defaulting mortgagor fails to pay the mortgage debt within a court-specified
period.” Black’s Law Dictionary 789 (11th ed. 2019). Further, “[t]he use of strict
foreclosure is limited to special situations except in those few states that permit this
remedy generally.” Id. The running of law days in a strict foreclosure procedure
“serves as the operative act which extinguishes the mortgagor’s right of
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warranted the entry of a judgment of strict foreclosure without a finding regarding
the value of the property, which would be determined upon a motion for a deficiency
judgment. The bank thereafter recorded a certificate of foreclosure on November 8,
2017.
The bank then filed an amended motion for a deficiency judgment. In April
2018, the Connecticut hearing justice found that the value of the property on the
ownership transfer date was $18.4 million. Subsequently, in July 2018, the
Connecticut hearing justice issued an order granting the bank’s motion for a
deficiency judgment against Stonestreet “as of April 30, 2018 in favor of the [bank]
in the amount of $5,022,003.67 with post judgment interest accruing after April 30,
2018 at * * * prime rate plus four (4%) percent interest.” No appeal was taken from
that final judgment.
B
Rhode Island Proceedings
In April 2016, the bank filed a complaint in Rhode Island Superior Court
arguing, inter alia, that the guarantors are jointly and severally liable to the bank for
the indebtedness due under their guaranty. The bank then filed a motion for partial
redemption[.]” Wells Fargo Bank of Minnesota, N.A. v. Morgan, 909 A.2d 526, 531
(Conn. App. Ct. 2006). More than one hundred years ago, this Court declared that
“[s]trict foreclosures have not been considered with favor, and within the last century
they have almost entirely given way to foreclosures by sale.” Hazard v. Robinson,
15 R.I. 226, 229, 2 A. 433, 436-37 (1886).
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summary judgment in December 2017. Days before the hearing on that motion,
Fay’s attorney filed a petition for admission pro hac vice, which stated, “[Fay’s
out-of-state attorney] currently represents the interests of the [d]efendant in a
companion case, with substantially similar issues in the State of Connecticut.”2
Subsequently, in June 2018, the hearing justice found that the guarantors were liable
for the moneys due under the guaranty. The hearing justice, however, found that the
precise amount of the deficiency was not before him at that time—all that was before
him was the question of whether a deficiency existed.3
In August 2018, following the conclusion of the Connecticut proceedings, the
bank moved for summary judgment in Rhode Island Superior Court, setting forth
several legal theories in furtherance of its contention that the guarantors are “liable
for the amount adjudicated by the Connecticut Proceeding.” The hearing justice
thereafter heard arguments from the bank and the guarantors regarding “the amount
due under this guaranty.” In his decision on the motion, the hearing justice addressed
all six legal theories put forth by the bank, including: (1) the doctrine of merger; (2)
res judicata; (3) collateral estoppel; (4) the Restatement (Second) Judgments; (5)
judicial estoppel; and (6) the doctrine of judicial admission.
2
The record transmitted by the Superior Court does not contain an order granting or
denying this motion. Nonetheless, the record indicates that Fay’s out-of-state
attorney did appear on his behalf.
3
Following the hearing on the motion for partial summary judgment, Fay also filed
an amended answer; however, a motion to amend the answer was never filed.
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Through his discussion of these legal theories, the hearing justice ultimately
found that the guarantors were in privity with Stonestreet and were thereby bound
by the Connecticut deficiency judgment. The hearing justice then determined that,
while Rhode Island law governed the guaranty, Connecticut law governed the issue
of res judicata. In applying Connecticut law, the hearing justice found that res
judicata barred the redetermination of the debt owed to the bank. With regard to
collateral estoppel and the Restatement (Second) Judgments, the hearing justice
determined that the principles applied to the judgment of the Connecticut Superior
Court and, accordingly, both Fay and Patrick were “bound by the Connecticut
Court’s valuation of the [p]roperty.”
Additionally, the hearing justice declined to hold a new trial on the amount of
the deficiency because the doctrine of judicial estoppel would preclude such a trial,
as the guarantors had previously argued before him that the Superior Court could not
decide the amount, if any, that the guarantors would owe until the Connecticut
Superior Court adjudicated the deficiency due. For these reasons, the hearing justice
granted summary judgment in favor of the bank and found the guarantors jointly and
severally liable to the bank for $5,022,003.67, plus interest, in accordance with the
Connecticut Superior Court’s previous judgment.
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Final judgment was entered in favor of the bank on November 2, 2018. Fay
filed a timely appeal on November 21, 2018, and Patrick did the same on November
26, 2018. The guarantors’ appeals were thereafter consolidated on May 29, 2019.
II
Standard of Review
“This Court will review the grant of a motion for summary judgment de novo,
employing the same standards and rules used by the hearing justice.” Nelson v.
Allstate Insurance Company, 228 A.3d 983, 984-85 (R.I. 2020) (quoting JHRW,
LLC v. Seaport Studios, Inc., 212 A.3d 168, 175 (R.I. 2019)). “We will affirm a trial
court’s decision only if, after reviewing the admissible evidence in the light most
favorable to the nonmoving party, we conclude that no genuine issue of material fact
exists and that the moving party is entitled to judgment as a matter of law.” Id. at
985 (quoting Seaport Studios, Inc., 212 A.3d at 175). “Furthermore, the nonmoving
party bears the burden of proving by competent evidence the existence of a disputed
issue of material fact and cannot rest upon mere allegations or denials in the
pleadings, mere conclusions or mere legal opinions.” Id. (quoting Seaport Studios,
Inc., 212 A.3d at 175).
“We accord great deference to the decision by a hearing justice to grant or
deny a motion to amend and will not disturb his [or her] decision unless he [or she]
abused his [or her] discretion.” CACH, LLC v. Potter, 154 A.3d 939, 942 (R.I. 2017).
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“Rule 15(a) of the Superior Court Rules of Civil Procedure states that ‘leave [to
amend] shall be freely given when justice so requires.’” Id. We have applied this
rule liberally to permit amendment “absent a showing of extreme prejudice.” Id.
(quoting Wachsberger v. Pepper, 583 A.2d 77, 78 (R.I. 1990)).
III
Discussion
On appeal, the guarantors contend that the hearing justice erred when he
granted the bank’s motion for partial summary judgment as to the guarantors’
liability on the guaranty. The guarantors further argue that the hearing justice erred
in granting the bank’s motion for summary judgment, finding that the guarantors
were bound by the Connecticut Superior Court’s deficiency calculation. Finally, the
guarantors assert that the hearing justice erred when he denied Fay’s motion to
amend his answer without a hearing.
A
Motion for Partial Summary Judgment
Before this Court, the guarantors first contend that the hearing justice erred in
granting partial summary judgment in favor of the bank, finding the guarantors liable
for Stonestreet’s debt due on the guaranty. The guarantors argue that, at the time the
hearing justice granted that aspect of the bank’s motion for partial summary
judgment, genuine issues of material fact remained as to whether Connecticut
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General Statute § 49-1 acted as a bar to further action on the debt after the bank
pursued a judicial foreclosure in Connecticut Superior Court.4 The guarantors
asserted in Rhode Island Superior Court, as they do here, that § 49-1 “bar[red]
collateral action for a deficiency against guarantors who were not named in the
foreclosure action if they could have been made parties to that action and the
guarant[y] was secured by the mortgage.”
In addressing the guarantors’ argument under Conn. Gen. Stat. § 49-1, the
hearing justice looked to an analogous Connecticut case, which both parties have
cited. See JP Morgan Chase Bank, N.A. v. Winthrop Properties, LLC, 94 A.3d 622
(Conn. 2014). He explained that “the Winthrop Court explicitly ‘recognized the
general principle that a guarant[y] agreement is a separate and distinct obligation
from that of the note or other obligation[,]’” (quoting id. at 630 (citing Carpenter v.
4
Connecticut General Statute § 49-1 states, in relevant part:
“The foreclosure of a mortgage is a bar to any further
action upon the mortgage debt, note or obligation against
the person or persons who are liable for the payment
thereof who are made parties to the foreclosure and also
against any person or persons upon whom service of
process to constitute an action in personam could have
been made within this state at the commencement of the
foreclosure; but the foreclosure is not a bar to any further
action upon the mortgage debt, note or obligation as to any
person liable for the payment thereof upon whom service
of process to constitute an action in personam could not
have been made within this state at the commencement of
the foreclosure.”
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Thompson, 34 A. 105, 106-07 (Conn. 1895))), and that “it is almost universally
recognized in other jurisdictions that a guarantor’s liability does not arise from the
debt or other obligation secured by the mortgage; rather, it flows from the separate
and distinct obligation incurred under the guarant[y] contract.” Id. at 631. Applying
the principles set forth in Winthrop, the hearing justice concluded that the guarantors
“were not proper parties to the foreclosure action.” Thus, Conn. Gen. Stat. § 49-1
did not afford them protection.
Ultimately, however, the hearing justice based his decision on his finding that
Rhode Island law, not Connecticut law, governed the guarantors’ liability under the
guaranty. In making this determination, he noted the choice-of-law clause present
in the guaranty, which provides:
“This Agreement and the rights and obligations of the
parties hereunder shall in all respects be governed and
construed and enforced in accordance with the internal
laws of the State of Rhode Island, without giving effect to
principles of conflicts of law [sic]. In addition, the fact
that portions of the Loan Documents may include
provisions drafted to conform to the law of the State of
Connecticut is not intended, nor shall it be deemed, in any
way to derogate the parties’ choice of law as set forth
herein.”
As such, he determined that Conn. Gen. Stat. § 49-1 was not applicable and that
Rhode Island law governs the issue. We agree.
Parties are generally “permitted to agree that the law of a particular
jurisdiction will govern their transaction.” DeFontes v. Dell, Inc., 984 A.2d 1061,
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1066 (R.I. 2009) (quoting Terrace Group v. Vermont Castings, Inc., 753 A.2d 350,
353 (R.I. 2000)). “Choice-of-law provisions are valid and enforceable in nearly all
jurisdictions that have passed upon them.” DeCesare v. Lincoln Benefit Life
Company, 852 A.2d 474, 481 (R.I. 2004). Furthermore, “[t]his Court previously has
held that choice-of-law provisions are enforceable if the intention of the parties to
stipulate to the jurisdiction is made clear by express language or by the ‘facts and
circumstances attending the making of the contract.’” Id. (quoting Owens v.
Hagenbeck-Wallace Shows Co., 58 R.I. 162, 173-74, 192 A. 158, 164 (1937)).
The guarantors assert that the forbearance agreement, signed by both
Stonestreet and the guarantors, required that they stipulate to a Connecticut “Strict
Foreclosure” proceeding, which the guarantors argue creates a genuine issue of fact
as to the applicability of Conn. Gen. Stat. § 49-1. The forbearance agreement, in its
choice-of-law provision, specifically states that it “is executed and delivered in the
State of Connecticut * * * and it is the desire and intention of the parties that it be in
all respects interpreted according to the laws of the State.” (Emphasis added.)
“In determining whether a contract is ambiguous, a court should read the
contract in its entirety and ‘give words their plain, ordinary, and usual meaning.’”
Roadepot, LLC v. Home Depot, U.S.A., Inc., 163 A.3d 513, 519 (R.I. 2017) (quoting
Botelho v. City of Pawtucket School Department, 130 A.3d 172, 176 (R.I. 2016)).
“In situations in which the language of a contractual agreement is plain and
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unambiguous, its meaning should be determined without reference to extrinsic facts
or aids.” Id. (brackets omitted) (quoting Botelho, 130 A.3d at 176-77). The plain
language of these documents clearly indicates that the parties intended that Rhode
Island law govern the guaranty and that Connecticut law govern the forbearance
agreement. See id. (noting that “a reviewing court should not seek out ambiguity
where there is none”). In paragraph thirteen of the forbearance agreement, entitled
“Guarantor’s Representations and Warranties[,]” each of the guarantors “reaffirms
all of his representations and warranties set forth in the [l]oan [d]ocuments[,]” which
explicitly includes the guaranty. Furthermore, the same section states that the
forbearance agreement “does not contravene” any other contract or agreement to
which the guarantors are a party and that “the [g]uaranty, and the other [l]oan
[d]ocments executed by [the guarantors] are fully enforceable by their terms.”
Moreover, had the parties desired that Connecticut law govern the enforceability of
the guaranty, they could have drafted the guaranty accordingly.
It is clear to us that Rhode Island law governs the issue of whether the
guarantors are liable under the guaranty and that Conn. Gen. Stat. § 49-1 is not
applicable. The guarantors have raised no arguments indicating that they would not
be bound by the guaranty under Rhode Island law. As such, it is our opinion that
the hearing justice did not err in granting summary judgment in favor of the bank
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with respect to the guarantors’ liability to the bank for any and all indebtedness due
under the guaranty.
B
Motion for Summary Judgment
Next, the guarantors argue that the hearing justice erred in granting the bank’s
motion for summary judgment by finding that the guarantors were bound by the
deficiency calculation rendered by the Connecticut Superior Court. The guarantors
reason that they were not parties to the Connecticut litigation and, therefore, they
should not be bound by the order in that case. The guarantors also assert that the
hearing justice acted inconsistently with his earlier decision on the bank’s motion
for partial summary judgment because, although he found the guaranty and mortgage
to be separate obligations, he still found that the guarantors were in privity with
Stonestreet and therefore bound by the Connecticut deficiency judgment.
While the hearing justice found the guarantors liable for the amount
adjudicated in Connecticut under six legal theories, we deem it unnecessary for this
Court to examine all six because it is clear to us that the guarantors are liable under
the doctrine of res judicata, otherwise known as claim preclusion. “It has long been
established that ‘full faith and credit generally requires every State to give a
judgment at least the res judicata effect which the judgment would be accorded in
the State which rendered it.’” Lamarque v. Fairbanks Capital Corp., 927 A.2d 753,
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760 (R.I. 2007) (brackets omitted) (quoting Hospitality Management Associates,
Inc. v. Shell Oil Co., 591 S.E.2d 611, 616 (S.C. 2004), cert. denied, 543 U.S. 916
(2004)). In giving full faith and credit to the Connecticut Superior Court, we apply
Connecticut law to the res judicata issue in this case. See id.
The Connecticut Supreme Court has noted that “[u]nder the doctrine of res
judicata, a final judgment, when rendered on the merits, is an absolute bar to a
subsequent action between the same parties or those in privity with them, upon the
same claim[.]” Weiss v. Weiss, 998 A.2d 766, 783 (Conn. 2010) (deletions omitted)
(emphasis added) (quoting Rocco v. Garrison, 848 A.2d 352, 361 (Conn. 2004)).
“A key consideration in determining the existence of privity is the sharing of the
same legal right by the parties allegedly in privity.” Girolametti v. Michael Horton
Associates, Inc., 208 A.3d 1223, 1229 (Conn. 2019) (quoting Mazziotti v. Allstate
Insurance Company, 695 A.2d 1010, 1017 (Conn. 1997)). The primary
consideration is an equitable one, meaning that “the interest of the party to be
precluded must have been sufficiently represented in the prior action so that the
application of res judicata is not inequitable.” Id. (brackets omitted) (quoting
Wheeler v. Beachcroft, LLC, 129 A.3d 677, 690 (Conn. 2016)).
Furthermore, the Connecticut Supreme Court has generally held that “a
judgment in an action involving a party who is an officer, director, stockholder, or
member of a non-stock corporation does not have preclusive effects on the
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corporation itself.” Joe’s Pizza, Inc. v. Aetna Life and Casualty Company, 675 A.2d
441, 445 (Conn. 1996) (brackets omitted) (quoting Restatement (Second) Judgments
§ 59 at 93-94 (1982)). “This rule of general applicability, however, is subject to an
exception for corporations that are closely held[.]” Id.; see Restatement (Second)
Judgments § 59(3) at 94. “If the corporation is closely held, in that one or a few
persons hold substantially the entire ownership in it, the judgment in an action by
[or against the corporation or] the holder of ownership in it is conclusive upon the
[other of them] as to issues determined therein[.]” Id. (quoting Restatement (Second)
Judgments § 59(3)(b) at 94). In that situation, “[t]he judgment in an action by or
against the corporation is conclusive upon the holder of its ownership if he [or she]
actively participated in the action on behalf of the corporation, unless his [or her]
interests and those of the corporation are so different that he [or she] should have
opportunity to relitigate the issue[.]” Restatement (Second) Judgments § 59(3)(a) at
94.
The parties do not dispute that the guarantors were not parties to the
Connecticut Superior Court proceedings and that the court issued a final judgment.
We agree with the hearing justice, however, that there was “no issue of material fact
with regard to whether [the guarantors] are in privity with Stonestreet” and that the
guarantors’ rights were adequately represented in the Connecticut proceedings. The
guarantors were the sole owners of Stonestreet, with Fay as both the majority owner
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and manager, clearly indicating that the corporation was closely held. See
Restatement (Second) Judgments § 59(3) at 94. Indeed, Fay acknowledged in his
deposition that he directed the Connecticut litigation on behalf of Stonestreet. See
id. Furthermore, Patrick clearly shared common legal interests with Fay and
Stonestreet, as he adopted Fay’s legal positions at each level of litigation. Finally,
Attorney Eric Henzy, who represented Stonestreet in Connecticut, was permitted to
represent Fay in Rhode Island Superior Court. The pro hac vice application states
that Attorney Henzy represented “the interests of [Fay] in a companion case, with
substantially similar issues in the State of Connecticut.” This evidence clearly
indicates that the guarantors were in privity with Stonestreet and, as such, res
judicata bars further litigation of the claim by the guarantors.
Therefore, the hearing justice did not err in finding that the guarantors were
bound by the deficiency judgment rendered by the Connecticut Superior Court.
C
Motion to Amend Answer
Finally, the guarantors argue that the hearing justice erred when he denied
Fay’s motion to amend his answer without a hearing or explanation. While this
motion does not appear on the Superior Court docket, our review of the record
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indicates that the hearing justice denied Fay’s motion to amend his answer when he
granted the bank’s motion for partial summary judgment.5
Again, “Rule 15(a) of the Superior Court Rules of Civil Procedure states that
‘leave [to amend] shall be freely given when justice so requires.’” CACH, LLC, 154
A.3d at 942. Our comparison of Fay’s answer and his proposed amended answer
reveals that Fay sought to add a single affirmative defense—the argument discussed
supra regarding the applicability of Conn. Gen. Stat. § 49-1. This argument was
clearly the focal point for the hearing justice’s June 29, 2018 decision granting the
bank’s motion for partial summary judgment, which indicates to us that Fay was
able to raise that defense and argue its applicability before the hearing justice. The
hearing justice, with whom we agree, decided, however, that Conn. Gen. Stat. § 49-1
did not apply to the factual scenario before him, because Rhode Island law clearly
governed the agreement.
Additionally, Fay and the bank appear to have each submitted memoranda on
the issue of the motion to amend. Although the hearing justice did not specifically
address the motion to amend in his June 29, 2018 decision, he did address quite
thoroughly the argument that Fay sought to raise regarding the applicability of Conn.
Gen. Stat. § 49-1, and he noted the denial of the motion to amend in his July 5, 2018
5
The record transmitted by the Superior Court does not contain a copy of the motion
to amend or the related memoranda and objections. We were, however, provided
copies of those documents by the bank in its appendix.
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order. Clearly, his analysis in that decision directly pertained to the affirmative
defense that Fay sought to raise with his amended answer. Furthermore, nothing in
Rule 15 or our own jurisprudence indicates to us that a hearing is required on such
motions. We are thus satisfied that the hearing justice did not err in denying Fay’s
motion to amend.
IV
Conclusion
For the foregoing reasons, the judgment of the Superior Court is affirmed.
The papers in this case may be remanded to that tribunal.
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STATE OF RHODE ISLAND
SUPREME COURT – CLERK’S OFFICE
Licht Judicial Complex
250 Benefit Street
Providence, RI 02903
OPINION COVER SHEET
Title of Case Bank of America, N.A. v. Timothy G. Fay et al.
No. 2019-126-Appeal.
Case Number No. 2019-139-Appeal.
(PC 16-1618)
Date Opinion Filed December 11, 2020
Justices Suttell, C.J., Goldberg, Flaherty, and Robinson, JJ.
Written By Chief Justice Paul A. Suttell
Source of Appeal Providence County Superior Court
Judicial Officer from Lower Court Associate Justice Michael A. Silverstein
For Plaintiff:
Richard L. Gemma, Esq.
Robert D. Wieck, Esq.
Attorney(s) on Appeal For Defendants:
Thomas M. Dickinson, Esq.
Timothy J. Morgan, Esq.
William Kenneth O’Donnell, Esq.
SU-CMS-02A (revised June 2020)