Mosberg v. National Property Analyst, Inc.

Order, Supreme Court, New York County (Beatrice Shainswit, J.), entered March 7, 1994, which denied plaintiffs motion for summary judgment and granted defendant’s cross motion for an order dismissing the complaint, affirmed, without costs or disbursements.

Plaintiff, Mosberg, is a limited partner of Tinley Plaza Associates, a real estate limited partnership, and defendant National Property Analyst, Inc. (NPA) is the general partner.

A class action was commenced in the Federal District Court by investors in the limited partnership and Mosberg and thousands of others took part in a settlement of that action, which the Federal court approved on July 27, 1989, setting August 10, 1989 as the final date for members of the plaintiff class to opt out of the class for settlement purposes (O’Brien v National Prop. Analysts Partners, 739 F Supp 896 [SD NY]). Plaintiff not only did not opt out, he actively participated in the settlement. To insure settlement payments made, Mosberg completed a "Proof of Claim and Release and Vote on Consolidation” which he executed on March 1, 1990. This clearly incorporated the terms of the settlement agreement, which contains section 3.1 (a), headed "Release of Claims by Plaintiffs” and reads, in pertinent part: "Upon the Settlement Effective Date (and as a part of each Proof of Claim) NPA * * * shall be released and be deemed released by all members of the Settlement Class (with respect to all direct and class claims) and all members of the Derivative Settlement Class (with respect to all derivative claims) hereby and thereby from any and all and all [sic] manner of actions, claims, causes of action, allegations or rights whatsoever, whether class or individual in nature, whether in law or in equity, whether based on federal or state law, including, without limiting the generality of the foregoing, any and all suits, claims, demands, debts, liabilities, obligations, promises or controversies which any of the members of the Settlement Class (with respect to all direct claims), any of the members of the Derivative Settlement Class (with respect to all derivative claims), or any of them, ever had, now have or may hereafter have, including Unknown Claims, against any or all of the foregoing persons or entities, by reason of, based upon, or arising out of or in connection with, directly or indirectly * * * the Partnerships * * * the operations of the Partnerships * * * and any of the facts, circumstances, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions, or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that are or at any time could have been alleged, referred to, alluded to or reflected in the Action, either as an individual, class or derivative claim, as well as all allegations in the Action (collectively referred to as the 'Released Claims’), together with such other releases as the parties hereto may agree are appropriate.”

The one-unit interest Mosberg had purchased in the Tinley limited partnership was governed by a partnership agreement, which, inter alia, provided that a limited partner could require the general partner to buy his/her unit(s) (the Put Option), by giving written notice between July 1, 1988 and December 31, 1990 (the Exercise Period). Plaintiff, on July 8, 1990, attempted to exercise this Put Option, and when defendant NPA refused payment, plaintiff brought this action for the exercise price, plus interest.

We agree with the IAS Court that plaintiff by taking part in the settlement and agreeing to the release, which is extremely broad, relinquished any prior partnership right to exercise the Put Option.

It is settled law that "the releasor, whether the issue arise in reformation or on construction of the instrument, must sustain the burden of persuasion if he is to establish that the general language of the release, valid on its face and properly executed, is to be limited because of a mutual mistake, or otherwise does not represent the intent of the parties” (Mangini v McClurg, 24 NY2d 556, 563). Plaintiff, the releasor herein, failed to meet this burden. The language of the release embraces all possible matters arising between the parties relating to plaintiffs initial investment in Tinley, including the claimed breach of the partnership agreement, asserted in the complaint herein.

Further, when plaintiff entered into the settlement and executed the release, approximately two-thirds of the Exercise Period for the Put Option had already elapsed. Plaintiff either knew or should have known that claims arising out of an attempted exercise of the Put Option were within the broad terms of the release, which covered not only claims involved in the Federal litigation but any claims which could have been litigated (Mar Co. Export v Banco De Santander-Puerto Rico, 99 AD2d 403, 404). Plaintiff would not have received two distributions of cash from the O’Brien settlement fund (on July 15, 1991 and on January 5, 1992), and have received or be scheduled to receive another final distribution, if defendant NPA, which accepted his release, was also required to purchase back his partnership interest. This would create a windfall for plaintiff that the terms of the release were designed to prevent. In O’Brien v National Prop. Analysts Partners (739 F Supp 896, supra), the District Court denied a motion by various limited partners for relief from the settlement agreement, even though the release allegedly prevented them from raising certain defenses and counterclaims, in suits filed by NPA in New York State courts, on notes they had executed for their partnership interests. That court noted that to relieve the limited partners therein would give a windfall to those investors who had defaulted on their notes, while those who had fully paid the notes would suffer an increased proportional loss (supra, at 902). This is directly analogous to the windfall Mosberg would receive benefiting from the settlement cash distributions, by not opting out of the settlement, if he is also able to sell his partnership interest. He truly will "eat his cake and have it too”.

We agree with the Federal District Court in O’Brien that "[T]he Court does not believe that due process requires further explanation of the effects of the release provision in addition to the clear meaning of the words of the release. In a situation such as at bar, movants had the responsibility to study the release, to determine its effects on their personal affairs, and to decide whether to opt out from the settlement agreement” (supra, at 902). Plaintiff herein had the same opportunity and responsibility to study the release, and if he wished to proceed to exercise the Put Option, instead of receiving the fruits of the settlement, could have opted out of the settlement. He chose not to do so and, therefore, is bound by its broad terms which encompass the attempted exercise of the option.

As the dissent recognizes, we decide that the settlement extends to the contractual relationship between the parties. We could hardly do otherwise in view of the language of the settlement which releases the defendant from "all manner of actions, claims, causes of action, allegations or rights whatsoever”, including "any and all suits, claims, demands, debts, liabilities, obligations, promises or controversies * * * including Unknown Claims”. A conclusion that language only includes tort, not contract claims, appears strained. In concluding otherwise, we give effect to the plain language and express terms of the settlement and release entered in the Federal court.

We do not "presume to usurp the role of the United States District Court for the Southern District of New York by adjudicating this controversy” (dissenting mem, at 489). We simply fulfill our constitutional and statutory duty by deciding an issue properly before us by extending res judicata effect to an order of the Federal court. Concur—Ellerin, J. P., Ross, Nardelli and Williams, JJ.