Realty Law Digest

, New York Law Journal


Scott E. Mollen
Scott E. Mollen

Co-Ops­—Condos—Attorney General (AG) Determination as to Purchaser's Right to Return of a Down Payment Does Not Warrant Application of Res Judicata or Collateral Estoppel—AG's Procedures Are Not Sufficiently Judicial to Apply Preclusion Doctrines

This litigation involves the renovation by a defendant developer of a hotel and a plan "to convert the hotel into luxury hotel units…and residential cooperative units…." The plaintiffs sought rescission of their purchase agreement (contract) with the sponsor and declaratory relief nullifying the sponsor's notice of plaintiffs' alleged default in refusing to proceed with closing of the sale. The plaintiffs also sought an order requiring the sponsor to file an amended offering plan (plan) with the NYS Attorney General (AG) and return the plaintiffs' down payment.

The complaint alleged claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent inducement, negligent misrepresentation and deceptive trade practices under N.Y. Gen. Bus. Law §349 (§349). The defendants moved to dismiss the complaint based on documentary evidence, res judicata and collateral estoppel. The defendants argued that the AG's prior ruling (AG ruling) barred the plaintiffs' action. The AG had determined that "the Sponsor's nondisclosure of more than $23,000,000 in mortgages encumbering the…property did not constitute an omission materially adverse to plaintiffs, entitling them to rescind their contract." The court denied the defendants' motion to dismiss.

The defendants relied primarily on the AG ruling. The "uncertified copy of the [AG ruling] [was] inadmissible." The defendants had also presented the plan and contract, but those documents were also "unauthenticated and thus inadmissible." The court noted that the plan, "insofar as it may have been filed with the [AG], for example, is uncertified by that office." Nor did "any witness authenticate the [plan] or, assuming defendants present it for the truth of its contents, lay a foundation for its admissibility as an exception to the rule against hearsay." Further, no witness attested "to plaintiffs' signature or to circumstantial authentication" with respect to the contract.

Since the defendants had not provided "evidence in admissible form, the court [denied] dismissal on the grounds of documentary evidence." Moreover, the court stated that "[e]ven considering the document on which defendants primarily rely, the [AG ruling], it [did] not negate plaintiffs' claims…."

The court further explained:

Under the doctrine of res judicata or claim preclusion, a final judgment on a claim bars future actions between the same parties based on the same claim or other claims arising from the same transactions between the parties…. Under New York's transactional approach, the final judgment on the merits also bars all other claims arising from the transaction, even if based on different theories or seeking different relief…. Res judicata also bars claims against a nonparty to a prior proceeding whose liability depends on the liability of a party found not liable in that proceeding…or whose interests otherwise were represented by the party in the prior proceeding, such the nonparty was in privity with the party….

Collateral estoppel bars a party from pursuing a claim necessarily decided in a previous action where there was a full and fair opportunity to litigate the issue, and the party pursuing the claim is the same…. For res judicata or collateral estoppel to apply, the claim or issue must have been resolved against the party now seeking to raise the issue or against another party in privity with the current claimant….

Res judicata and collateral estoppel apply to prior administrative agency determinations, as long as the agency employed "procedures substantially similar to those used in a court of law"…. The preclusive effect of an administrative decision depends on four criteria. (1) The agency's adjudication was within its authority. (2) The agency's procedures ensured adequate testing of evidence, finding of facts, and consideration of issues. (3) The parties expected to be finally bound by the adjudication. (4) Preclusive effect is consistent with the agency's administrative need for flexibility in modifying prior decisions to adapt policy to changing conditions….

The court found that the AG's "procedures in making" its determination were "not sufficiently judicial to apply the preclusion doctrine." The plaintiffs' application to the AG and the sponsor's response "involved only the submission of documents." Although the "plaintiffs may have been free to present a vast array of documents, no mechanism allowed plaintiffs to present non-documentary evidence, test the veracity of defendant Sponsor's documents, or cross-examine their authors or signatories or other witnesses involved with the parties' transaction."

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