Bank of America, N.A. v. Timothy G. Fay

• Court: Supreme Court of Rhode Island
• Decided: December 11, 2020
• Docket: 19-126, 139
• Status: Published

Opinion

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

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.

-1- 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

-2- 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

-3- 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).

-4- 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.

-5- 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.

-6- 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).

-7- “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.

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

-8- 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.”

-9- 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,

- 10 - 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

- 11 - 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

- 12 - with respect to the guarantors’ liability to the bank for any and all indebtedness due

under the guaranty.

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,

- 13 - 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

- 14 - 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

- 15 - 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

- 16 - 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.

- 17 - 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.

- 18 - 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)