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Allenby, LLC v. Credit Suisse AG

Court of Appeals of Texas, Fifth District, Dallas

August 1, 2017


         On Appeal from the 298th Judicial District Court Dallas County, Texas Trial Court Cause No. DC-15-05965-M

          Before Justices Bridges, Myers, and Brown



         This case involves issues of res judicata and choice of law concerning an agreement to toll limitations. Allenby, LLC and Haygood, LLC appeal the summary judgment granted in favor of Credit Suisse AG, Cayman Islands Branch on their claims for breach of contract and promissory estoppel. Appellants bring four issues on appeal contending the trial court erred by granting Credit Suisse's motion for summary judgment and by denying appellants' motion for summary judgment. We affirm the trial court's judgment.


         Appellants were investors in credit agreements, [1] which were non-recourse real-estate loans put together by Credit Suisse. Appellants provided hundreds of millions of dollars to fund the loans. Because the loans were non-recourse, the value of the collateral as reflected in appraisals was important information in appellants' determination of the investment risk associated with each loan. According to appellants, the appraisals "grossly overstated the value of the underlying collateral, " and when the borrowers defaulted, appellants lost hundreds of millions of dollars. Appellants maintained that Credit Suisse had the obligation to check the reasonableness of the appraisals of the collateral. Credit Suisse had claims against appellants for failing to settle their trades concerning commercial loans with Credit Suisse.

         Before filing suit against one another, appellants and Credit Suisse engaged in settlement discussions. To keep their claims alive, the parties signed tolling agreements.[2] The first tolling agreement provided that time would not accrue for statute-of-limitations purposes between September 24, 2010 and January 24, 2011. The parties amended the first tolling agreement four times by extending the termination of the tolling period to a specific date. In September 2011, Credit Suisse's counsel contacted appellants' counsel and suggested that they sign a second tolling agreement providing that limitations would be tolled until a party gave thirty days' notice of intent to terminate the tolling agreement. Appellants agreed, and the parties signed the second tolling agreement, which contained language to that effect. The second tolling agreement included a promise that the parties would not include the tolling period in any assertion of a limitations defense.

         About two years later, appellants gave Credit Suisse notice of intent to terminate the tolling agreement, and after the thirty-day notice period expired, they filed suit in New York state court alleging claims for breach of contract, breach of the duty of good faith and fair dealing, fraud, conspiracy, and unjust enrichment. Credit Suisse filed suit against appellants on its claims.

         Credit Suisse obtained a judgment for over $50 million on its claims. Credit Suisse then amended its answer to appellants' complaint and asserted the defense of limitations on appellants' breach-of-contract claims. The same day, Credit Suisse filed its motion for summary judgment arguing that tolling agreements for an indefinite period for breach-of-contract claims are not enforceable under New York law.[3] The New York courts agreed that the parties' tolling agreement was not enforceable to prevent the running of limitations on appellants' breach-of-contract claims, and the court dismissed appellants' breach-of-contract claims that had accrued before July 25, 2006. See Allenby, LLC v. Credit Suisse, AG, 25 N.Y.S.3d 1, 3 (N.Y.App.Div. 2015); see also N.Y. Gen. Oblig. § 17-103 (applies to "[a] promise to waive, to extend, or not to plead the statute of limitation applicable to an action arising out of a contract"); Bayridge Air Rights, Inc. v. Blitman Constr. Corp., 599 N.E.2d 673, 674-75 (N.Y. 1992) (under Gen. Oblig. § 17-103, indefinite tolling agreements are "ineffective to extend the limitations period" for breach-of-contract claims). In doing so, the New York courts determined "that the tolling agreement was governed by New York rather than Texas law" and "that equitable estoppel did not apply as a matter of law." Id. The New York courts held that certain of appellants' contract claims were filed within the limitations period, and although the New York trial court dismissed the fraud claims, the appellate division ordered appellants' fraud claims reinstated. Id. at 3-6.

         Appellants then filed this suit in Texas alleging Credit Suisse breached its promise in the tolling agreement not to include the tolling period in the calculation of whether limitations barred appellants' claims. Appellants also alleged promissory estoppel. Appellants sought to recover as damages the value of the claims dismissed in New York under the statute of limitations as well as the attorney's fees they incurred as a result of Credit Suisse's violation of the tolling agreement.[4] Credit Suisse moved for summary judgment on all of appellants' claims asserting they were barred by res judicata and that they would fail as a matter of law. Credit Suisse asked that they be dismissed with prejudice. Appellants moved for summary judgment and asked that the trial court render a partial summary judgment, ruling that the tolling agreement is governed by Texas law and that Credit Suisse breached the tolling agreement. The trial court signed an order granting Credit Suisse's motion for summary judgment and ordered that appellants take nothing on their claims. The trial court did not expressly rule on appellants' motion for summary judgment.


         Appellants' issues contend the trial court erred by granting Credit Suisse's motion for summary judgment. The standard for reviewing a traditional summary judgment is well established. See Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985); McAfee, Inc. v. Agilysys, Inc., 316 S.W.3d 820, 825 (Tex. App.-Dallas 2010, no pet.). The movant has the burden of showing that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. Tex.R.Civ.P. 166a(c). In deciding whether a disputed material fact issue exists precluding summary judgment, evidence favorable to the nonmovant will be taken as true. Nixon, 690 S.W.2d at 549; In re Estate of Berry, 280 S.W.3d 478, 480 (Tex. App.-Dallas 2009, no pet.). Every reasonable inference must be indulged in favor of the nonmovant and any doubts resolved in its favor. City of Keller v. Wilson, 168 S.W.3d 802, 824 (Tex. 2005). We review a summary judgment de novo to determine whether a party's right to prevail is established as a matter of law. Dickey v. Club Corp., 12 S.W.3d 172, 175 (Tex. App.-Dallas 2000, pet. denied).


         In their first issue, appellants contend the trial court erred by applying the doctrine of res judicata to bar appellants' causes of action in this case. The parties agree that the preclusive effect of a prior decision is determined by the law of the state that issued that decision-New York, in this case. See Purcell v. Bellinger, 940 S.W.2d 599, 601 (Tex. 1997) ("If the New York judgment is a valid, final judgment that would have had preclusive effect on this suit had it been brought in New York, then it bars this suit in Texas as well."). Therefore, the question is whether appellants' claims for breach of contract and promissory estoppel would be barred by res judicata if appellants had brought them in New York instead of Texas.

Under the doctrine of res judicata, a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter. The rule applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation. The rationale underlying this principle is that a party who has been given a full and fair opportunity to litigate a claim should not be allowed to do so again.

In re Hunter, 827 N.E.2d 269, 274 (N.Y. 2005).

         "The doctrine of res judicata operates to preclude the reconsideration of claims actually litigated and resolved in a prior proceeding, as well as claims for different relief against the same party which arise out of the same factual grouping or transaction, and which should have or could have been resolved in the prior proceeding." Schwarz v. Schwarz, 2017 WL 1902379, at *2 (N.Y.App.Div. May 10, 2017). "Under New York's transactional approach to 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.'" Id. (quoting Parolisi v. Slavin, 950 N.Y.S.2d 140, 142 (N.Y.App.Div. 2012) (quoting O'Brien v. Syracuse, 429 N.E.2d 1158, 1159 (N.Y. 1981)). "New York does not have a compulsory counterclaim rule[;] a defendant who fails to assert a counterclaim is not barred by the doctrine of res judicata from subsequently commencing a new action on that claim unless the claim would impair the rights or interests established in the first action." Wax ex rel. Wax v. 716 Realty, LLC, 2017 WL 2562374, at *2 (N.Y.App.Div. June 14, 2017) (landlord's suits for possession of apartment and unpaid rent in which tenant sought rent abatement for bedbug infestation did not bar tenant's later suit against landlord for personal injuries from the bedbug infestation because tenant's success in second claim would not impair landlord's rights to possession of the property and judgment for unpaid rent established in the earlier suits).

         In New York, res judicata precludes claims that have been dismissed under a statute of limitations from being litigated in a second suit arising from the same operative facts. See Johnson v. City of New York, 50 N.Y.S.3d 461, 462-63 (N.Y.App.Div. 2017) (suit alleging intentional tort dismissed on limitations; subsequent suit alleging negligence under same facts barred by res judicata); see also Landau v. LaRossa, Mitchell & Ross, 892 N.E.2d 380, 383 n.3 (N.Y. 2008) ("dismissal based on the statute of limitations . . . is equivalent to a determination on the merits for res judicata purposes" (quoting 10 Weinstein, Korn, Miller, N.Y. Civ. Prac. ¶ 5011.11, at 50-116 (2nd ed.)).

         Appellants' Texas claims fall into two categories: (1) those that require proof of liability and damages for the claims alleged in appellants' complaint in the New York litigation, and (2) those that seek only appellants' attorney's fees incurred for opposing Credit Suisse's assertion of the statute of limitations and for bringing this suit. We address each category in turn. As discussed below, we conclude (1) appellants' claims seeking to recover the same damages sought in the New York litigation are barred by res judicata; and (2) appellants' breach-of-contract claim seeking attorney's fees is not barred by res judicata, and (3) appellants' promissory estoppel claim seeking attorney's fees is barred by res judicata.

         Claims Involving the New York Litigation

         Appellants assert that res judicata does not bar their claims because their New York claims concerned Credit Suisse's breach of credit agreements by its use of appraisals it knew were inflated, while appellants' claims in this case involve breach of the tolling agreement and promissory estoppel from Credit Suisse's promise not to assert a limitations defense in the New York litigation. Credit Suisse argues that res judicata does bar appellants' claims because appellants seek to obtain in Texas the same damages from the same claims on which they sought recovery in New York.

         This case is not one where a plaintiff is merely reasserting the same claims or using a new legal theory under the same facts. Nor is it one where the claims brought in different actions are legally unconnected. See, e.g., Murray, Hollander, Sullivan & Bass v. Hem Research, Inc., 489 N.Y.S.2d 187, 190 (N.Y.App.Div. 1985) (state suit for nonpayment of billed attorney's fees was not barred by federal-court judgment on promissory note signed to settle claim for attorney's fees for different period). Instead, appellants assert Credit Suisse's liability is premised on their breach of the promises in the tolling agreement, which occurred years after the actions on which they based their New York claims. However, except for some attorney's fees, the remedy appellants seek in this case is the same as it sought in the New York litigation and requires proof of the same facts they would have had to prove to recover damages in New York. As appellants state in their brief, they are "seeking to recover the value of the claims dismissed as time-barred in New York." To prove that "value, " appellants would have to prove Credit Suisse's liability and their damages in the New York claims.

         Thus, appellants' Texas claims seeking recovery under their New York claims constitute a case within a case. The only way appellants can prove their damages in this case is by proving the case they would have presented in New York. Allowing appellants to try their dismissed New York claims in Texas would impair the rights and interests established in Credit Suisse's favor in the New York litigation. Therefore, to this extent, appellants' claims in this case are alternative theories to recover the same relief as the New York claims. Applying New York's doctrine of res judicata, we conclude that appellants' claims are barred to the extent that appellants would have to prove Credit Suisse liable and recover damages under their New York claims.

         Appellants argue that a case-within-a-case scenario like this one is not barred by res judicata in New York, citing Gamer v. Ross, 854 N.Y.S.2d 160 (App. Div. 2008). Gamer was a legal malpractice case where the plaintiffs retained the attorneys to sue a landowner and construction contractor when the plaintiffs' child was hurt by tripping over construction materials on the sidewalk. Id. at 161. The trial court granted the contractor's and property owner's motions for summary judgment and dismissed the plaintiffs' case against them. Id. The plaintiffs then sued their lawyers, asserting they were negligent for not conducting sufficient discovery that would have enabled the plaintiffs to prevail against the property owner's and contractor's motions for summary judgment. Id. at 161-62. The defendant lawyers moved for summary judgment asserting the plaintiffs' claim was barred by res judicata. Id. at 162. The appellate division concluded the trial court properly denied the lawyers' motion for summary judgment because "the pretrial dismissal of the underlying actions did not constitute conclusive proof that those actions were without merit; it showed only that the plaintiffs were unable to raise triable issues of fact regarding the potential liability of the landowner and its contractor." Id. Thus, it appears the appellate division concluded the lawyers failed to meet the requirement that the earlier case be actually litigated. See Schwarz, 2017 WL 1902379, at *2. However, as discussed above, "dismissal based on the statute of limitations . . . is equivalent to a determination on the merits for res judicata purposes." Landau, 892 N.E.2d at 383 n.3. We conclude Gamer is not applicable to this case.

         Claims for Attorney's Fees

         Appellants also assert they have claims that do not require the same proof, seek the same damages, or arise from the same facts as the New York litigation, namely, their claims for breach of contract and promissory estoppel arising from Credit Suisse's assertion of the statute of limitations when it expressly represented in the tolling agreement it would not do so. In these claims, appellants pleaded that they seek their attorney's fees for opposing Credit Suisse's assertion of limitations in the New York litigation and for bringing this suit to enforce the tolling agreement and Credit Suisse's representations under the agreement.

         Breach ...

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