[*1]
Behette v 122 Hoyt St. Corp.
2010 NY Slip Op 50036(U) [26 Misc 3d 1210(A)]
Decided on January 13, 2010
Supreme Court, Kings County
Demarest, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
As corrected in part through March 1, 2010; it will not be published in the printed Official Reports.


Decided on January 13, 2010
Supreme Court, Kings County


John Behette, Individually and as President of Brooklyn Heights Developers, Plaintiff,

against

122 Hoyt Street Corp., Ziad Khaled, Malaki Khaled, Mohammed Najjar, Badrish Najjar, and Mousa A. Khalil, Defendants.




10752/06



Attorney for Plaintiff:

Annmarie Venuti, Esq.

One Brush Hill Rd. - Suite 207

Danbury, CT 06812

Attorney for Defendant:

Aleksandr Cherny, Esq.

Cherny & Podolsky, PLLC

8778 Bay Parkway, Suite 202

Brooklyn, NY 11214

Carolyn E. Demarest, J.



Defendants Badria Najjar s/h/a Badrish Najjar (Badrish) and Malake Khaled s/h/a Malaki Khaled (Malaki) move for an order, pursuant to CPLR 3211 (a) (7) and CPLR 3212, granting them summary judgment dismissing this action to recover debts owed on a promissory note signed only by defendant Ziad Khaled as president of 122 Hoyt Street Corp.. Plaintiff John Behette (Behette), individually and as President of plaintiff Brooklyn Heights Developers (BH Developers), cross-moves for an order dismissing defendants' affirmative defenses, pursuant to CPLR 3211 (b); dismissing defendants' counterclaim, pursuant to CPLR 3211 (a) (6); and granting summary judgment for plaintiff, pursuant to CPLR 3212 (b).

[*2]FACTS AND PROCEDURAL HISTORY


Defendant 122 Hoyt Street Corp. (Hoyt Corp) purchased a residential building located at 122 Hoyt Street in Brooklyn, New York from plaintiff BH Developers in July 2001. The purchase price of the property was $405,000 and the contract of sale (the Contract) conveyed the property "as-is." Plaintiff John Behette agreed to provide financing.

At the closing in July 2001 (the Closing), Ziad Khaled (Ziad), Hoyt Corp's president and only shareholder, executed a promissory note for $200,000 (the Promissory Note) on behalf of the corporation payable to John Behette. Hoyt Corp also paid $205,000 to BH Developers and applied a five thousand dollar ($5,000) gift, which Ziad received from Badrish Najjar, his mother-in-law, toward the closing costs. No mortgage or other document in recordable form was ever signed by Hoyt Corp.[FN1] At the Closing, the parties discussed rescheduling the closing until a proper mortgage document could be prepared, but the closing was ultimately completed that same day.

Hoyt Corp made its payments on the note for several months after the Closing before defendants allegedly first discovered the extent of damage to the building. Defendants allege that plaintiff lied to them about certain aspects of the property's condition, including fire damage to the ceiling beams in one of the apartments and lead paint violations throughout the building. Following a final interest payment in February 2002, Hoyt Corp ceased making payments on the note, as funds were purportedly depleted to pay off striking tenants, emergency repairs, and urgent violations. A $50,000 payment against principle, due November 1, 2001, was not made. The Note was due on April 1, 2002. Hoyt Corp subsequently sold the property in March 2003 to defendant Mousa Khalil (Khalil) for $480,000.

In June 2002, Behette commenced an action bearing index number 21792/02 (Behette I) in Kings County against Hoyt Corp, the only party liable on the note. In that action, Behette moved for summary judgment pursuant to CPLR 3213, which the Hon. Diana A. Johnson denied, and the parties discontinued the action by stipulation.[FN2]

In November 2003, Behette commenced a second action, bearing index number 43471/03 (Behette II), against Hoyt Corp and Ziad, to collect on the note. When defendants failed to answer or appear on the return date, the Hon. Laura L. Jacobson granted a default judgment, dated June 3, 2005, against Hoyt Corp and Ziad (the Default Judgment) which defendants have never sought to vacate.[FN3] The Default Judgment awarded damages in the amount of $391,916.51 plus interest against [*3]defendants Hoyt Corp and Ziad. Plaintiff now seeks to litigate his claim against family members of Ziad who were not named in the earlier litigation.

Plaintiff brought the instant action on April 6, 2006, naming as defendants members of Ziad's family and Khalil [FN4], the individual who purchased the property from Hoyt Corp after Hoyt Corp ceased making payments on the note, and Stephen Feder, the attorney who represented Hoyt Corp and Ziad during their initial purchase of the subject property in July 2001 (but not during its subsequent sale).[FN5] Badrish and Malaki, Ziad's sister-in-law,[FN6] were among the family members named as defendants. The complaint alleges various causes of action sounding in fraudulent conveyance, conversion, and unjust enrichment against defendants. While defendants Badrish and Malaki have moved for dismissal of the complaint against them, the other defendants have not so moved, notwithstanding the entry of a default judgment in a prior action.

THE PARTIES' CONTENTIONS
Defendants Badrish and Malaki move for summary judgment on the ground that the complaint fails to state a cause of action against them, and because defendants have a defense based on documentary evidence, given that no contract, agreement, or promise was ever entered into between plaintiff and defendants. Although Badrish and Malaki attended the Closing in July 2001, they emphasize that they never had any possessory interest in the property, were not shareholders in Hoyt Corp, were not debtors of plaintiff in relation to any transaction, and did not retain any proceeds from the 2003 sale of the subject property. They contend that any claim against them for debts owed by Hoyt Corp and Ziad is barred by the Statute of Frauds. Badrish and Malaki also assert that plaintiff makes no specific allegations against them and that they cannot be liable for the actions of their co-defendants merely because they are members of the same family.

In his cross motion, plaintiff argues that defendants' affirmative defenses and counterclaim should be dismissed because res judicata and collateral estoppel apply with respect to Hoyt Corp and Ziad, who waived their opportunity to raise such claims by defaulting in Behette II and failing to move to vacate the Default Judgment.[FN7] Plaintiff further maintains that he has set forth prima facie evidence that service was in fact proper and that defendants' opportunity to move to vacate the Default Judgment expired a year after its entry (June 2006). He also claims that defendants failed to provide any factual basis for their affirmative defenses and counterclaim. Finally, plaintiff asserts that defendants have not suffered the damages necessary to support a fraud claim because they [*4]earned a profit from the sale of the subject property to Khalil. Plaintiff argues that if the Court considers defendants' affirmative defenses and counterclaim, plaintiff is entitled to summary judgment because defendants' claims are conclusory and unsupported.

In their affidavits, defendants Ziad, Malaki, and Badrish argue that plaintiff cannot collect against them on the Promissory Note because it was not signed by anyone in his or her personal capacity, nor was any mortgage note ever signed. They argue that res judicata does not apply to preclude the individual defendants, Ziad, Malaki, Mohammed, and Badrish, from interposing affirmative defenses or counterclaims because the prior judgment, entered on default, was not made on the merits and the new defendants were not parties to Behette II, nor were they in privity with the defendants therein. Defendants allege that Behette's prevention of interaction with tenants of the subject property prior to closing, his representation that rents were paid, and the adjustment for rent at closing were all elements of plaintiff's fraud. Defendants also oppose that part of plaintiff's motion seeking summary judgment contending that plaintiff did not submit anything, besides self-serving affidavits, to establish that any defendants, other than Ziad, were shareholders of Hoyt Corp, the corporation whose veil plaintiff seeks to pierce. Mohammed's affidavit, prepared in response to plaintiff's motion under Index Number 21792/02, executed in Beirut, Lebanon on August 8, 2002, details the allegedly fraudulent actions taken by Behette to pressure Hoyt Corp to close as soon as possible so defendants would not discover the alleged violations and or other problems with the subject property.

DISCUSSION


As a preliminary matter, plaintiff's failure to set a return date in his cross motion papers is not dispositive. Such a technical defect does not render the motion fatally defective (see C.V., Inc. v WNC Tarrytown Co., 4 Misc 3d 1013[A] [2004]; see also CPLR 2001; Troy Properties v Dimitriadis, 56 AD3d 1086, 1087 [2008]), especially where, as here, defendants have not alleged any substantial right that was prejudiced by plaintiff's failure (see Brown v Cassier, 95 AD2d 574, 577-578 [1983]).

Badrish and Malaki's motion seeking dismissal is supported by the sworn affidavits of Badrish, Malaki, and Ziad attesting that neither Badrish nor Malaki had any possessory interest or were shareholders in Hoyt Corp. Furthermore, Badrish and Malaki attest that they never signed any documents or made any promises to assume the debt or responsibilities of Ziad or Hoyt Corp or guarantee payment or act as surety on any debts incurred. They argue that they did not fraudulently convey the subject property to Khalil, convert funds, become unjustly enriched, or defraud plaintiff. At oral argument on September 23, 2009, plaintiff acknowledged that his claims against Badrish are based on her $5,000 gift to Ziad for purchase of the subject property. Plaintiff submits no opposition papers to contest defendants' motion. Accordingly, the Court grants defendants Badrish and Malaki summary judgment dismissing them from this action.

In opposition to plaintiff's cross motion for summary judgment, defendants contend that their affirmative defenses and counterclaim are not barred by res judicata inasmuch as the prior default judgment against Hoyt Corp and Ziad was not decided on the merits. However, a default judgment is conclusive for res judicata purposes (see Rosendale v Citibank, NA, 262 AD2d 628, 628 [1999]; see also Silverman v Leucadia, Inc., 156 AD2d 442, 443 [1989]). Res judicata applies "to an order or judgment taken by default which has not been vacated, as well as to issues which were or could have been raised in the prior [action]" (Lazides v P & G Enterprises, 58 AD3d 607, 609 [2009]; [*5]Allstate Ins. Co. v Williams, 29 AD3d 688, 690 [2006]). In Behette II, the Default Judgment against Hoyt Corp and Ziad was not vacated. Hoyt Corp and Ziad are thus barred from raising their affirmative defenses and counterclaim in this action, as they should have been raised in the prior action.

Similarly, the Default Judgment in Behette II also operates to bar remaining defendant Mohammed from asserting the affirmative defenses and counterclaim raised in this action. Res judicata applies to future actions between the same parties on the same cause of action (see Fogel v Oelmann, 7 AD3d 485, 486 [2004]; Field Home-Holy Comforter v DeBuono, 238 AD2d 589, 590 [1997]), as well as those in privity with them, even if they were not parties on record in the previous action (see Matter of State of New York v Seaport Manor A.C.F., 19 AD3d 609, 610 [2009]; Watts v Swiss Bank Corp., 27 NY2d 270 [1970]). To establish privity, "the connection between the parties must be such that the interests of the nonparty can be said to have been represented in the prior proceeding" (Green v Santa Fe Indus., 70 NY2d 244, 253 [1987]). Privity has also been found where a person so controlled the conduct of the prior litigation in which they were interested such that the result is res judicata against them (Id. at 254; see also Watts, 27 NY2d 270). Thus, as the documentary evidence establishes that defendant Mohammed was instrumental in the negotiation of the purchase at issue and acted as an agent for Ziad,[FN8] he would be in privity with defendants in Behette II and may not relitigate issues that would be resolved therein.

However, Mohammed has consistently disputed his alleged status as an owner of 122 Hoyt Street and any personal liability on the promissory note. The evidence is unequivocal that plaintiff was well aware of Mohammed's relationship to defendants in Behette II and failed to bring him into that suit. "Under the doctrine of res judicata, once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred even if based upon different theories or if seeking a different remedy [citations omitted]. The doctrine is applicable to an order or judgment taken by default which has not been vacated, as well as to issues which were or could have been raised in the prior proceeding", citing Sterling Doubleday Enterprises v Marro, 238 AD2d 502 [2d Dept 1997], upon which plaintiff relies. Matter of Eagle Insurance Co. v Facey, 272 AD2d 399 [2d Dept 2000]. See also, Perkins v Allstate Insurance Co., 51 AD3d 647, 648 [2d Dept 2008]; Zayatz v Collins, 48 AD3d 1287, 1290 [4th Dept 2008]; O'Brien v City of Syracuse, 54 NY2d 353, 357 [1981].

Although, in her Affirmation in Support of plaintiff's cross motion, Counsel Venuti states that the instant action "was commenced to enforce the June 3, 2005 Default Judgment," a review of the complaint satisfies this Court that plaintiff is seeking to re-litigate the same claim as that already resolved in his favor by Behette II. Plaintiff's voluntary discontinuance against Mousa Khalil, the purchaser of the property, deprives plaintiff's complaint of any semblance of merit regarding the fifth [*6]cause of action, denominated "Constructive Fraud" but premised upon Debtor and Creditor Law §§ 272-275, 278 and 279. There are no allegations against any of the "Family" defendants, which could not have been raised in Behette II, to support the continued prosecution of this action. Accordingly, this action must be dismissed in its entirety as to all parties. See Johansen v Gillen Living Trust, 63 AD3d 1006 [2d Dept 2009]; Timoney v Newmark & Co. Real Estate, Inc., 36 AD3d 686 [2d Dept 2007]; CPLR 3212(b) ["If it shall appear that any party other than the moving party is entitled to a summary judgment, the court may grant such judgment without the necessity of a cross-motion."].

This action is dismissed with prejudice as to all claims, both those of plaintiff and the counterclaims of defendants, as precluded by the doctrine of res judicata.

The foregoing constitutes the decision, order, and judgment of the court.

ENTER,

J. S. C.

Footnotes


Footnote 1: The only document presented at the Closing that resembled a mortgage was the allegedly defective mortgage prepared by plaintiff's counsel that was not executed. According to the Complaint, Ziad agreed to sign the Promissory Note to Behette conditioned upon the signing of a mortgage document to be modified to account for monthly payments of interest only, rather than both principal and interest. In his affidavit, Mohammed Najjar states that 122 Hoyt subsequently refused to execute a mortgage because of plaintiff's concealment and fraud.

Footnote 2: According to plaintiff Behette, he was persuaded by defendants to discontinue Behette I as a sign of good faith while the parties tried to settle their dispute.

Footnote 3: This case would normally be referred to Justice Jacobson; however, the earlier judgment did not come to this court's attention until after several appearances and extensive litigation regarding discovery had taken place in the Commercial Division.

Footnote 4: The action was voluntarily discontinued against Defendant Khalil by plaintiff.

Footnote 5: An amended complaint omits Mr. Feder as a defendant.

Footnote 6: Plaintiff's papers label Malaki as Ziad's wife, upon information and belief.

Footnote 7: Defendants assert as affirmative defenses improper service of process on Ziad, Badrish, and Mohammed Najjar (Mohammed), Malaki's brother and the managing agent of Hoyt Corp; failure to state a cause of action; unclean hands; waiver, laches, and acquiescence; the Statute of Frauds, and the Parole Evidence Rule. Defendants also assert a counterclaim based on fraud.

Footnote 8:As the managing agent of Hoyt Corp, Mohammed had a "correlative representational status in [the earlier] litigation" (see Restatement [Second] of Judgments § 41, Comment b). He met with Behette to discuss and negotiate the proposed sale of the subject building, coordinated the Closing between BH Developers/Behette and Hoyt Corp/Ziad, and notified Behette that Ziad would not sign the mortgage documents because of problems with tenants and housing violations.