# Appendix — First Federal Savings & Loan Ass'n v. McNellis > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_0009%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1966 - **Citation:** 385 U.S. 970 ## Text P Nees _ Memorandum Decision and. Order Granting Defendant Summary Judgment mec aauinae: Piaintifis Com.” ‘oplaint (Jan. 14, 1966). (SAME. TITLE) - BRENNAN, Judge. This litigation, brought “a8 two Trustees in Bankraptey, | _ arises from the complicated and alleged interwoven finan- cial affairs of the three bankrupts named in the ‘above’ caption, . . The defendant, AP referred: to’ as “First Fed- ~ ‘eral’’, has moved before this court seeking several types of _ Yelief, all of which have become academic except the motion — to dismiss the complaint because same fails to state a claim against the defendant upon‘which relief can be granted. _ Upon the return day of the motion, voluminous supporting _ affidavits, documents ete. were filed in behalf of the moving ‘party in in support of the motion. It developed therefrom that a Similar action had. been brought by the same p against the defendant in the State Supreme Court of Onon-. daga County. At the time of the return day of the motion, ’ it appeared that there was pending, undetermined in the - state court, defendant’s motion for a summary judgment. dismissing the complaint therein. Under the circumstances and upon the understanding that the actions were similar, : - this court stayed proceedings in this action awaiting the ‘outcome of the pending motion in the state court. This court is now furnished with a copy of the decision of Supreme corporations defending claims but also pre- vents a corporation from suing affirmatively to set aside — conveyances and contracts on the grounds of usury. (Curtis : v Leavitt, 15 N. Y. 9, p 152; ‘Southern L & T Company v - Packer, 17 N.Y. 51; Rosa v Butterfield, 33.N .Y. 665.) A cor-. poration’s representative stands in no better position than _ does the corporation itself, and is, likewise, prohibited from _ asserting the claim of usury in an affirmative action. (But- terworth v O’Brien, 23 N.Y. 275; Curtis v Leavitt, supra, page 132) and this is so even if the corporation was formed .* for the sole purpose of avoiding the usury statute. (Jenkins v Moyse, 254 N.Y. 319; Union Dime spas. Bank of New | York v Wilmot, 94 N.Y. 221. >” “Where the corporation is the principal dhiigee the fact — of incorporation is a defense to usury and the Courts may ‘~ not disregard the corporate entity. (Werger v Haines - Corporation, 94 N.Y.S. 2d, 691, affd. 277 A.D. 1108, 101° N.Y.S. 2d 361, affd. 302 N.Y. 930; Kings Mercantile Com- pany, Inc. v. Cooper, 199 Misc. 381, 100 N.Y.S. 2d 754.) . It follows that the motion of the defendant for summary judgment ooert the complaint. with costs should be granted. So Ne et gt . ‘2. ke or partial summary judgment. lia - In view of the decision above announced, the following. motions concurrently or subsequently argued or submitted by the plaintiffs in this action are denied without costs: FIRST: Pursuant to Section 3042 C.P.LR. to strike in, part the demand of the defendant for a bill of particulars. SECOND: Pacveent to Section 3211 C. P. LR. to strike _ affirmative defenses. THIRD: - Pursuant to Section 3212 (g) ©. P LR. to limit 3 questions of fact. | FOURTH: To strike answering affidavits of Mitchell T.. Williams i in opposition to ne ai “motion to strike affir- mative defenses. FIFTH: To strike the affidavit of Mitchell ya Williams : and Cortland L. Brovitz in support of defendant’s motion * pursuant to Section 3212 C.P.L.R. for ‘summary judgment : Rc . SEXTH: Permitting plaintiffs to file and serve a sup- * pleenental complaint. : ORDERED ACCORDINGLY. . | Ks /s/ &. H. RINGROSE Dated: Rome,New York, © ae... Justice Supreme Court | : e. , 16a At a term of the Appellate. Division of the Su- _ preme. Court of the State of New York in and for the Fourth Judicial Department, at the City of Rochester, N.Y., commencing on the 30th day of . November, 1965. 7 . -Present—Hon. Alger A. Williams, Presiding Justice. Hon. Harry D. Goldman, Hon. Frederic T. Henry, Hon. Frank Del sdb irageess Hon. J _ S. Marsh, Associate Justices. PHILLIP J. MeN ELLIS AS TRUSTEE OF DONALD. S, POTTER, BANKRUPT, AND POTTER SECURITIES | CORPORATION, BANKRUPT, EUGENE H. KLEIN AS TRUSTEE OF RANDOLPH HOUSE MOTOR HO- TEL CORP., BANKRUPT, Appellants, - v8 . FIRST FEDERAL SAVINGS AND LOAN ASSOCTA- TION OF sles lama mopar re i ‘ : vs. sal, ae MYRON s. secs et al., Thira Party. Defendants, etc... A motion having been made on the part of the respondent to dismiss the appeal to this Court takeg in the above en- titled action, from an order of the Supreme Court, entered _ in the office of the Clerk of the County of Onondaga on the 14th day of July, 1964, for the failure of the appellants to ' ~ file and serve the papers on the appeal, ‘Now, upon reading and filing the affidavit of Mitchell a Williams, sworn to the 10th day of November, 1965,.the no- \. 17a Bane, tine of said motion, together with proof of. due service upon the attorneys for said appellants, the affidavit of Laurence 5 Sovik, sworn to the 23rd day of November, 1965, in opposi- tion thereto, and the reply affidavit of Mitchell T. Williams, sworn to the 29th day of N ovember, 1965, and: ‘due delibera- tion having been had thereon, | : It is hereby ORDERED, That, said motion be, and the /same hereby is granted, and the anosal So ‘taken is hereby | _ dismissed without costs. See Caira v. v. McKenna, 23 A D 2d ' 325. ; a et \ ‘ - ig Eniter. \at Giese 4 eh ee LESTER A. PANNING G Matias 2nd aay of. December, 1965. Lester A. Fannixe tes ? Sa \ Clerk. | te rig Naas: __ ORDER OF JUSTICE RINGROSE GRANTING APPELLEE’S MOTION FOR.SUMMARY JUDGMENT — | "IN THE STATE COURT ACTION | PRESENT: How. E. Howarp Ruvonose, Justice. aces. : The plaintiffs in. the above entitled action, having. made. - @ motion to strike affirmative defenses of defendant, First Federal Savings and Loan Association of Rochester, | pur- suant to Rule 3211 of the Civil Practice Law and Rules, . to limit questions of fact pursuant to Rule 3212(g) of the Civil Practice Law and Rules, and a motion for summary judgment or, in the alternative, partial summary judg- ment, pursuant te Rule 3212 of the Civil Practice Law and Rules;. the plaintiffs in: the ‘above entitled action, having _ also, by order to show cause, having made a moticn for an order aia) to Rule 3025 of the Civil Practice Law and @ a a Rules for permission to file and serve a supplemental com- " plaint ; and the plaintiffs in the above entitled action hav- ing made a motion to strike the answering affidavit of Mitchell T, Williams, sworn to February .18, 1964, in op-- position to plaintiffs’, motions. to strike affirmative de- - fenses, for summary judgment or partial summary judg- ment, and to limit questions of fact, and to strike affidavits - of Mitchell T. Williams and Cortland L. Brovitz, sworn _ » ‘to February 18, 1964 in support of defendant’s motion for _ -. summary judgnient or, in the alternative, partial summary: , judgment, and plaintiffs having withdrawn the aforemen- tioned motion by plaintiffs for summary judgment or, in the alternative, partial summary judgment, pursuant to Rule 3212 of. the Civil Practice: Law and Rules, and plaintiffs ‘ having requested that the papers submitted by plaintiffs in support of their’ motions for summary judgment or, in the alternative, .partial summary judgment, be considered by the Court in opposition to the hereinafter mentioned motion 3 by defendant for summary judgment. . Defendant, First Federal Savings and Loan Association of Rochester in the above entitled action having made.a ‘motion for an order pursuant to Rule 3212 of the Civil * Practice Law and Rules directing that judgment be entered a) herein in favor of the defendant on the grounds more particularly set forth in defendant’s moving papers, the cause of action set forth in the’ complaint having no merit, ‘and the defendant ‘inthe above entitled action having duly ‘ * - ‘moved for an order directing plaintiffs to furnish defend- ant. with ‘a further bill of particulars or to preclude, . Now, on reading and filing the following: B® The plaintiffs’ complaint herein verified November 21, 1963 and the exhibit thereto, and the answer of defendant, 198 First Federal Savings and Loan Association of Rochester, verified December 30, 1963, and Schedules .A through E, thereto, inclusive; Way ae ms “2. The four (4) third-party sutmmonses and complaints ‘- by defendant, First Federal Savings and Loan Association of Rochester, against (a) Myron 8, Melvin,. Crandall, Mel- -vin, Raymond O. Campbell, Lawson: Barnes, Louis Young, Edmund H., Easter, Dominic A. Mazza, George W. Cregg, Charles H. Thompson, Raymond J. Barth, Russell — Egleston, Edward Brown, Jr., James M. Graham, Eugene _F. Bersani, Crandall’ Melvin, Jr., Joseph S.. McMahon, | Richard D. Kharas, LaVerne F. ©’Dell and Merle D. Mel-. vin, d/b/a Melvin and Melvin of Syracuse, New York; (b) The Bersani Construction Corporation of Syracuse, New. York; (c) The Merchants National Bank and Trust Com: pany of Syracuse of Syracuse, New York; and (d) McKay _ Construction, Inc. of: Syracuse, New York; together with — _ Schedules A through D, A through D, A through F, and A through C, inclusive, thereto, respectively; — ae eat ' 8...The third-party summons and complaint by third-~—-—— _. party defendant, The Merchants National Bank and ‘Trust eee Company of Syracuse, against third-party defendant, Man- _ ufacturers Hanover Trust Company, New York, verified April 21,1964 and Schedules A through C, thereto, in- _¢Clusive; RL RE OAR Bel 4, The demand for a bill of ‘particulars by defendant, ~ _ First Federal Savings and Loan Association of Rochester, __ dated December 30,1963; , sips oath Ses lane: coe The four (4) answers to the third-party complaints . brought by defendant, First Federal Savings and Loan * Association, of Rochester by (a) Myron S. Melvin, Cran-. : dall- Melvin, Raymond O. Campbell, Lawson Barnes, Louis * ¢ ‘ F ‘ s..* J c~ , "* « . ! 3 . be : &y 7. yee pe going: Edmund H. aster, Dei, Mazza, Cesees W. Be - Crégg, “Charles N. Thompson, Raymond J. Barth, Crgn- 4 pte | LaVerne F.-Q*Del{ and Merle D. Melvin, d/b/a Melvin and.. cases Malta verified Fébruary 14, 1964; (b) The Bersani Con- _- 5 once ee! - Btruction Corporation, verified January 24,1964; (c) "Bre : a aia -., Merchants. National Bank and Trust Company of Syra- \ ee ‘New- -York, verified February 14, 1964; and (d) Mc-. [ae Kay. Construction, ‘Inc., verified January 24, 19645: (> s." \ Ge: Plaintiffs’ bill of particulars. verified Januaty-3, 1963.| ‘a . and with Exhibits \through 6 thereto, inclusive ; plaintiffs’ peewee: a ie furthier- bill: of partienlars verified February 22;.1964; ae Te Plnintifis?- order to show cause dated ‘February 26; —— | roe "1964; ana the affidavit of Laurence Sovik : sworn to February Sg ‘4 ; yo 26; 1964, and. “unverified. ee: ee annexed « ‘i a x thereto; Joneses i Ty - na, * mS a cae: - Paint iffs’ ‘adhe of tion strike affirmative de arr fenses putsbant to.Rale 3211 of the Oivil Practice Law and. 4, Neda ‘Rules; ‘Plaintiffs’ ‘motive of motion’ for summary judgment : ae, Oo | F 3 Y ite y or, ii in. the. alternative, partial summary judgment pursuant ~ ° i, fe Rule 3212 of the Civil Practice Law and Rules; atid plain. | i ~ tiff? notice of. motion to limit, questions of fact pursuant: | Ni . ~to Bule 3212(g) of the’Civil Practice Law-and Rules dated’ i a anuary: 8; 1964, the. affidavit of Laurence Sovik sworn to'. | Me , SS aee sie 0, | ye Bshibits 7 eure’ 11, thereto, ‘inelu- ae ‘sive; ie 3 Lan ‘ taand*of defendarit, First Federal Savings and Loan. Asso- — Hel Hen ce % 2 "“diation of: Rochester, for a bill of particulars pursuant to aes fe -, Tamuaty 2, 190632 8 v bs feos ~ 10. Plaintiffe? notice of dilion to strike the anoworing ae affidavit cof Mitghett, T. seccamea eworn to + Hebpeary 1 18, e 2 : . aoe Be = ae i : tae ie 2: ge x | i964, in opposition to plaintiffs’ motion to strike affirmative defenses, for summary judgment or partial summary judg- . . nent, and to limit questions of fact and plaintiffs’«notice of motion to. strike affidavits of Mitchell. T. Williams and. - Cortland L. Brovitz, sworn to February 18, 1964, i in ‘support | of defendant’s motion - for summary judgment or, in the: salternative, a summary judgment, dated penal 20, 1964. . pF Notice of Motion by defendant, First Federal as | ings and Loan: Association of’ Rochester for summary _ judgment or, in the alternative, p partial summary judgment 3 pursuant to Section -3212 of -the Civil Practice Law and ne se Rules dated February 18, 1964, the affidavit of Mitchell RE - Williams sworn to February 18, 1964, annexed thereto, _ and Exhibits A through P, thereto, inclusive; . SO. é7 d - 12; Notice of motion by deferidant, First Federal Sav- iy : ings and Loan Association of Rodhestér,’ to direct fa further © ._ bill of particulars or to precludé dated February 18, 1964, ~ and the affidavit of Mitchell T. Williams sworn to Febra- ary. 18; 1964, annexed thereto; ‘oe 13. The answering. affidavit of Mitchell T. Williams: -. sworn to February 18, 1964 for'defendant, First Federal _- . Sayings ard Loan Association of Rochester, in reply to - ~pilaintiffs’ motion to strike: affirmative defenses, summary judgment or partial summary judgment, and to limit ques- — | ~~ tions of fact, pursuant to Section oy of the Civil Practice ra - Law and Rules; ; ¢ / “14. The supplemental affidavit, ¢ for defendant First Fed- 3 ‘eral Savings and Loan Association of apse: of Cort. * . land L, Brovitz sworn to March 19, 1964; 16. "The affidavit, for defendant First nae Soc . and Loan ‘Association: of. Rochester, * Herbert A. om sworn to March 19, 1964; oe . én at oy : %?e ‘ x ‘ va cca ac cl ins ile Daaliaideal mea iaacamaaea aes ; 7 is sworn to March 16, 1964; oe ; "pe fendant, 16, The affidavit, for defendant First Federal Savings — and Loan Association of Rochester, of ora F. Perna 17. The affidavit, for. defendant First Federal ae and Loan -Association of Rochester, of Mitchell T. Wil- hams’ sworn te March 19, 1964, Exhibits od shreggh: U-2, inclusive, annexed: thereto; ; 18. Reply affidavit, for plaintiffs, of Robert N. Smith ‘sworn to February 27, 1964; 19. Affidavit, for plaintiffs, i in opposition to defendant’s motion for summary sapoent by Laurence Sovik sworn . to May 12, 1964. ; : S | Plaintiffs’ ‘iption for summary judgment having been withdrawn, those papers hereinabove mentioned submitted - _by the plaintiffs herein having been considered by the Court’ as requested by plaintiffs, ‘in opposition to the de- : ~ fendant’s motion for summary judgment, aid after hear- ing Robinson, Williams, Brown, Robinson, and Angeloff, ” attorneys. for the defendant, First Federal Savings and © Loan Association of Rochester, Mitchell T. Williams, Esq. of counsel, in support of the motion by. defendant, First ‘Federal. Savings and Loan Association of. Rochester, for summary judgment and Smith, Sovik, Terry, Kendrick, ,: McAuliffe and Schwarzer for the plaintiffs, Laurence Sovik, ‘Esq., in: opposition thereto, and due deliberation having- been had, it is upon motion of Robinson, Williams, Brown, Robinson and Angeloff, attorneys for the defendant, First - Federal Savings and Loan Association of Rochester, Mit- chell T. Williams, Esq. of counsel, for the aforesaid de- ORDERED, that said motion for summary judgment by the defendant, First Federal Savings and Loan Association _ of Rochester be and it hereby is in all respects granted, and it is IX ‘ e. FURTHER ORDERED, that the complaint be and the same hereby is dismissed and summary judgment granted _ defendant, First Federal Savings and Loan Association of . Rochester, with $25.00 cost : of-this motion, arid it is FURTHER ORDERED, that the aforesaid motions. by __ the plaintiffs to strike in part the demand of the defendant _ for a bill of particulars pursuant to Section 3042 of the Civil Practice Law and Rules, to strike affirmative defenses : pursuant to Section 3211 of the Civil Practice Law and i Rules, to limit questions of fact ‘pursuant to Section ~ _ 3212(g), to strike. answering affidavits of Mitchell T. Wil- -liams in opposition to plaintiffs’ motion to strike affirma-. tive defenses, to strike the affidavit of Mitchell T. Williams | and! Cortland L. ‘Brovitz in support of defendant’s motion _ pursuant to Section 3212 of the Civil Practice Law. and . Rules for summary judgment ot partial summary judg- ~ ment; and to permit plaintiffs to file and serve a supplemen- _. tal complaint, be and they hereby are in all respects denied, - without costs, and since the granting herein of summary judgment to defendant, First Federal Savings and Loan , Association of Rochester, renders a further bill of particu- — lars or preclusion unnecessary, the motion by defendant for an order directing plaintiffs to furnish defendant with a further bill of particulars or to preclude be and is also hereby.denied without costs, and itis _ cis - FURTHER ORDERED, that judgment be entered here- in by the Clerk of: this Court in favor of the defendant, First Federal Savings and Loan Association of Rochester, and against the plaintiffs, Phillip J. MeNellis, as Trustee of» Donald §. Potter, Bankrupt, and Potter Securities Corpora- S tion, Bankrupt, and Eugene, H. Klein, as Trustee of Ran- | ’ doph House Motor Hotel.Corp., Bankrupt, for‘the costs and — _ disbursements of this action to be taxed by the Clerk of the — Court and $25 .00, cost of this motion. Signed this 9th day of J uly, 1964, at Rome, New York. _ Enter: , y 8/. E. H. RINGROSE KE. Howarp Rincrose Justice, Supreme Court Onondaga County. pina Rca Clb PELL ERIE IED . s dl . . . .! ’ - « ‘ a paatecinetetcnsommnypasihionaesicpenaioncnniaereconary came Sinden incepepintrimniatpeanbeniiniat . PE SS. = 5. ei Ee a: * UNITED STATES COURT OF APPEALS = For THE Szconp (Crtcurr | | _ No. 357—September Term, 1965.° es (Argued May 2,1966 === Deeided July 27, 1966.) Docket No. 30327 | Pumur J. McNewus as Trustee of Donatp S. Porrer, . nat ite He - Bankrupt e¢ ai., © JF hanes, | 3 . Plaintiffs-A ppellants, ; ; Re f . . - First Feperan Savings anp Loan ASSOCIATION or Rc 320 E. Main Street, Rochester, New York, = Eee 7 Lace Defendant-Appeliee. ois) Before: r | : Lumnanp, Chief Judge, be se Moors and Femprne, Circuit Judges. aes oe ; —¢ : oh a 4 K Appeal from an order of the United States District Court. for the Northern District of New York, Brennan, J., grant- ing a motion for summary judgment: dismissing the com- plaint on the ground of res judicata. Reversed. Hee pth TS Ah wena so in _°) Laurence Sovix, New York (Smith, * Sevik, - Terry, Kendrick, McAuliffe p Sea Schwarzer, on the brief), for Plaintiffs. — . . Cart .Ancstorr} Rochester, New York (Robin- ‘son, Williams, Brown, Robinson and An- geloff; Frank Aloi, on the brief), for ave et eas .@ | ~ s . | -Pamamne, Circuit Judge: ei _ Appellants, two trustees in bashreiivy, fecal from an’ : order of the District Court for the Northern. District of - | ° New York, which granted appellee’s. metion for summary "judgment and dismissed the complaint. In a memorandum opinion, Judge Brennan held that the principles\ of res judicata compelled this result. For reasons set forth below, we reverse. _-_ = In November 1963, sippellants sued defendant-appeliee |. First ‘Federal Savings 'ahd'Loan Association of Rochester (“First Federal”) in the New York: Supreme Court, Onon- leged that plaintiffs were the ,trustees in bankruptcy of - Randolph House Motor Hotel Corp. (“Randolph”), Donald S. Potter, Jackson M. Potter, and Potter Securities Cor- poration (“Potter ‘Corp.”), all adjudicated bankrupt in June 1963; that at all relevant times Donald Potter was ? ‘daga County, in a two-count complaint. The first count al- insolvent and owned all the stock of Randolph, which was é _ also insolvent; that Potter Corp. was a “dummy” organized - by the Potters to hold title to certain properties for Donald to certain premises passed without cimaidération back and - Potter in order to conceal usurious transactions; that title — forth from Donald Potter to Potter Corp. several times .. and finally from that corporation to Randolph ; that Donald Potter paid for the construction of a motor hotel on the premises ; that a substantial portion of the materials and services for the construction was furnished by unsecured ereditors of Donald Potter and Randolph; that on or about | | ee 3 3 Aptil’ 27, 1962, First Federal entered into a sich com- . - mitment agreement with Potter Corp. on behalf of Donald Potter, under which Donald Potter paid First Federal $62,000 on April 27, 1962 and again on June 21, 1962; and that each payment, although characterized as a “mortgage | origination fee,” was actually intended to be interest on mortgage indebtedness i in excess of that authorized by ‘the ze, New York General Business Law and federal statutes re- lating to banks and banking. The second count of the com- " plaint alleged that the two payments of $62,000 were fraudu- ‘s lent dispositions of the’ bankrupts’ property; that the payments were made without fair consideration and in ‘violation’ of the New York Debtor and Creditor Law; and © that they were ‘made when defendant knew or should ‘have ae _. known the bankrupts were insolvent and unable to pay. their liabilities as they” would mature. The: ae sought é judgment for $248,000, with interest.’ : _ Both sides moved ‘for summary judgment in the state . - court action ; ; plaintiffs’ motion was. later withdrawn. ‘While © the motions were pending, plaintiffs moved for permission . - "to file and-serve a supplemental complaint as “a third sepa- » rate and distinct cause of action.” After. incorporating the original complaint, the supplemental complaint alleged that — Donald Potter. paid a total of $55,144 to First Federal on . the mortgage ($3,100 on August 2, 1962, $26,022 on Septem- _ ber 6, 1962, and $26,022 on September 21, 1962); that these ; payments were in violation of New York. Debt. & Cred. Law §§273-76, New York Banking Law §380-e, and section 67d (2) of the Bankruptcy Act; and that defendant knew at the : time of ‘the Lay berg? that the bankrupts were insolvent -®? 1 esl ci psi bss al che emia Law $3802. : peor ae 5 eae —, and unable to pay their Jiabilities. The atiditional relief prayed for was a judgment of $110,288? and attorneys’ fees. In May 1964, while these motions were pending’ in the state court, appellants. commenced: the action in the court below. The federal complaint alleged virtually everything in the state complaints and a few more details of the trans- actions in question. were. provided. . The complaint alleged - that ‘the two $62,000 payments represented illegal interest - ' in violation of New York’ Banking Law 4380-e and Article 10 of the New York Debtor and Creditor Law, and that the ~ second $62,000 payment and the three subsequent payments totalling $55,144 were in violation of section Y 67d of the Bankruptcy. Act and Article 10 of the New York Debtor and Creditor Law. * The complaint. sought double damages | ($248,000) on the claims arising out. of the two $62,000 pay- ~ ments and single darmagep ($55,144) on the later three pay- ments. First Federal moved below for summary judgment or a stay of proceedings on the ground that a state court action for the same relief was pending; J udge Brennan granted — ‘_ a-stay pending, deterfnination of the state action.’ In June | . 1964, First Federal’s motion for summary judgment in the |. New York Supreme Court was granted by Justice Ringrose. The judge viewed the state court action as ‘one to recover - $248,000 for ‘violation of the usury statutes, requiring a piercing of the corporate veil to overcome the exception for corporate borrowers. He held that there had to be proof that there was a loan in fact to an’ individual (Donald ' Potter), which the parties might wish to conceal, hut that the loan had actually been made to Randolph; which also | paid the “mortgage origination fee” of $124,000. He stated — "that the documentary proof established that no payments | 2 Bee note 1, supra oe? had been made by Donald Potter to defendant First Fed- eral. For a number of reasons which need not concern us here, the state court refused to pierce the corporate veil to hold usurious the two payments of $62,000. The opinion* — focussed on those two payments, which, as indicated above, — were the subjéct of the two counts of the original state court complaint ; the opinion did not mention the three later payments, totalling $55,144, which were the subject of the _ proposed supplemental state court complaint. At the end of the épinion, Justice Ringrose alluded to six pending motions in the’ case and denied them all without discussion, ah He stated, inter alia, . Ty Races @ shes In view of the decision: above anndunced, the follow- ing motions concurrently or subsequently argued or submitted by the plaintiffs in this action are denied without costs: : : 7 aac e © ee ee Eee Ue ‘Srxtu: Permitting plaintiffs io file and serve a sup- plemental complaint. = : ieee An appeal. was taken from this decision but was later‘ dis- , missed in’ Decémber 1965.2 = Selgte i At this point, First Federal understandably. renewed its Motion in the court bélow for summary judgment. Ap- parently, plaintiffs did not dispute ‘below that the state court decision barred their federal ‘action insofar as it _- sought relief because of'a usurious “origination fee.” Plain. tiffs did insist, however, that the claim for $55,144 based on. > ‘8 = First Federal’s motion to dismiss the appeal for failure of appellants : to file and -serve the papers .on appeal ‘was granted by the Appelate Division of the Supreme Court, Fourth. Department ‘on December 2, * 1965. | rye EA 2 z : bi y ee ~ the three subsequent payments on the mortgage in August ci and September 1962 was not barred. Judge Brennan held 7} that since the state court determined that. usury “rules were inapplicable, the August and ‘September payments .+ made on a valid mortgage could hardly’ be invalidated. J udge Brennan also relied on the state court denial of z permission to file the supplemental complaint, and the iden- tity between the proposed third cause of action contained therein and the relevant portion of the instant complaint.. ‘He concluded that “the principle of res judicata” required . granting defendant’s motion for summary judgment... Appellants” only contention here is that the court misap- 7 " plied the principles of, res judicata." What those principles | are in general i is Rot! ‘difficult. to state; applying them to a specific situations is sometimes’ another matter. Briefiy, where a judgment has been rendered in an action between two parties for a sum of money and there is subsequently — another action between the same parties, the first judgment has varying conclusive effect. If the second action i Is, based _ upon the same cause of action as the first,’ the’ prior a Tia ment i is conclusive as to all matters which were litigat might have been litigated in the first action.. Howev Pie . the second action is based upon a different cause of sttion, the prior judgment is conclusive between the parties only . as to matters actually litigated and determined by the first ; judgment; that judgment is not conclusive as to matters which might have jee but which were not, litiga 4 Doses: vii cd idle: inleet' eh South Sus aamacsbac te . the effect of the prior judgment; appellants do not sateen Wectees to this point. Cf, Comment, Res Judioata in the Federal Courts: Appli-_ cation of Federal or State Law: Possible Differences Between the Two, 51 Cornell L. Q. 96 (1965). In any event, we do not feel that the state and federal law differ sufficiently in the area crucial in this cage to Se ae Ree ee Re ae oe ae pore. ¢ 4 ‘y~* vy _ determined in the prior-action. Cromwell v. County of Sac; ; 94 U.S. 351, 352-53 (1877) ; Restatement, Judgments, 158-59 (1942). The obvious beginning for an inquiry into res judicata is a determination of ‘what was claimed and de- Ss _ cided in the first action. The state court complaint alleged - “sthat payments of $62,000, in April and June 1962, repre- Cee _’. sented usurious interest (count one). and were a fraud on — .. ¢reditors (count two). The state court held that a corporate- ‘borrower could not avail itself of usury rules. The only reference to the fraudulent transfer aspects, of the com-- ~-— -~ plaint was that Randolph was solvent on June 21, 1962 (the date of the second $62,000 payment and of transfer of title - to Randolph, from Potter Corp.)." The court also denied |, without, dischssion’ permission’ to file a supplemental com- ely plaint: substantis y identical to. the. portion involved here _ ‘|’ of the complaint below. 8 ae +e Putting the supplemental complaint to one side for the - moment, we cannot see how the dismissal of counts one and two of the state court complaint, based on payments in | . April and June 1962, bars the action here to-recover other types'of payments:in August and September. Although | analysis is rendered ‘sorhewhat difficult by the jumble of theories and allegations in the complaints and briefs, it is - quite clear that the federal complaint is now reduced only "to recovery of a fraudulent transfer. In fact, plaintiffs use to their advantage the state court determination thafDon- _ ald Potter was not the “real borrower.” They assert that if this is so, then payments by Potter. of $55,144 on a mort- - gage incurred by someone else (Randolph) were without MF consideration ; since ‘the payments were made within one _ Sell. the ‘property: for $5,250,000 was in existence and the encumbering- - mortgages did not exceed $5,057,142.50. === ibe ~ | year prior to bankruptcy at a time when he : was s insolvent, af, they were fraudulent’ transfers. The claim that appellants *". now press has nothing to do with usury or the “origination ” fee”. and the fact that: the later three payments may have ? * represented interest is irrelevant. ‘Therefore, the action ‘now presented i in its truncated form in the federal court is clearly a different cause of action from the action presented in count one of the original state complaint. It-is true that - count.two of that complaint did contain a theory of fraudu- lent transfer to justify. recovery of the $62,000 payments. But this theory depended upon establishing insolvency on - _ April ¢ 27 or on June 21, 1962—the dates of the two payments —-and ‘eoneerned only these two payments. A cause of ac- ‘ion for a fraudulent transfer i in June-is not the same as S cause of action for a fraudulent transfer in. August or : =. September. Restatement, -J udgments. $61, comment c (1942). Appellee emphasizes that all payments grew out of - . the same mortg&ge and that. the mortgage, as pointed out. __ by the court bélow, has been held valid. However, appel- - . lants are not now relitigating the legality of the mortgage ; they: assume it i is valid, but questict the propriety of pay- . _ ments on it by an alleged stranger to the transaction, — - Donald Potter. We conclude that. the cause of action now pressed is ‘not the same as. ‘tat originally presentet to the. . state court. We do not view any of the cases cited by appelled? on ' determining what is the satne “cause of action” as com- ° pelling a contrary result. Cf. Developments in the Law— - ‘Res J«licata, 65 Harv. LL. Rev. 818, 824-25 (1952). William- » _ son v. Columbia Gas’ é Elec. Corp., 186 F. 2d 464 (3d Cir. . 1950), cert. denied, 341 U.S. 921 (1951), involved two civil . |. antitrust suits, one based upon the Sherman Act, the other cee the Clayton Act. The court concluded that the’ same _ San operative facta were peoatiel: in rac and that different 7 | . theories of recovery did not necessarily mean different c causes of action, a proposition we do not dispute. Of course, — the i issue then i is what are the “operative facts” ; ; here, unlike % % ' Williamson, significantly different evidence is : “required, see Restatement, Judgments $61 ( 1942), different. time periods: are involved a and different amounts are sought. ~ Kaufman v. Shoenberg, 154 F. Supp. 64 (D. Del. 1954), is similarly distinguishable, Smith v. Kirkpatrick, 305 N. Y. . » 66 (1953), and Schuylkill Fuel Corp. v. B.- & C. Nieberg | Realty Corp., 250 N. Yi. 304. (1929),, if anything, support: - the conclusion we reach here. In the latter. case, the court — said at, 250 N . Y. 3087 “The decisive test is this, whether. —~ the substance of the rights or interests established in the : first action will be destroyed. or impaired by the prosecu- tion of the second. ” As indicated above, the ‘state action - here determined, that the two $62,000 payments could not ) be recovered by the trustees ; success in the action new be- es ” fore ous could not “destroy or impair” that determination. . that res judicata*bars the trustees. = “XN . The present action might still be et eoegi if-it-- 3 could be fairly said that the issues still present had. been - litigated: and decided in the state court action; but such is. @, not the case. Appellants did claim in the state court that _ » Donald Potter made the two $62,000 payments, and the state court held he did not. But that court did. not have before it in the original state complaint the question whether Potter. ‘individually’ made the August and September payments. . . While Justice Ringrose stated that “no payments were * made at any time by, Donald S. Potter to the defendant,” _it is obvious that he was. Bena only on rea iad sto a une 21, 1962. 6 . - Appellee’s other casés similarly do not. Fequire ms to- hold ben 5 ‘Therefore, since the cause of action still pressed hy the a8 trustees in: this court is a different one from-the cause of | action originally presented to the Rate c court in counts one _and two of the state court complaint and since the key __ issnes flow presented were not there litigated and decided, _ normally principlés of rés judicata would not bar the action.. However, there must still be considered the effect ‘of: the - me ambiguous. disposition in the state court of the proposed = supplemental ¢ complaint; i.c., was there a judgment on the merits of that coniplaint sufficient to justify application of. re? judicata rules. If that proposed third cause of: action ; _ had been inelvded in ‘the ‘original state court complaint and _ defendant’s motion for: summary judgment had also been © : addressed to it, it may be conceded. that plaintiffs would “now be barred; identity both of parties and cause of action _ would present a classic ease for applying the salutary poli- cies behind the res judicata doctrine. However, the count was not included in. the. original complaint ; according to: — the frustees, the reason it-was not was that they did not - find out about the August and September payments uutil “after the state complaint had been filed.*. Therefore, count 2 three was never filed and technically was not before the state court; morecver, granting that this formality shouk! -not control, it is «'so qaite clear that count three was never before-the couri iu a realistic sense either. Plaintiffs’ mo- tion to file a sapplemental pleading was brought under ie N. Y. Civ. Prac. &. 3025(b),- which provides that. “leave rat _shal] be freely given:” Déspite this statement of a liberal — policy, the cursory reason given for denial of leave was “in | pre - 6 Phillip J. McNellte was eppointed bankruptey trestes of the estates —_________ _of Donald 8. Potter and Potter Corp. on June 25, 1963. The state court suit was brought on November 21, 1963; the motion to file a supplemental — was brought on February 26, 1964. " view of the decision above announced.” That decision did not discuss: the fraudulent conveyance theory of the first ‘complaint and focussed almost e tirely on the usury aspects’ ' of that complaint; moreover, it dealt only with the issues- . arising out of the two payments of $62,000. We also note that N. Y. Civ. Prac. R. 5013 provides: . oa A judgment’ dismissing a cause of action before the ‘s¢lose of the proponent’s evidence is not a dismissal on the merits unless it specifies otherwise, but a judgment _ dismissing a cause of action after the-close of the pro- - ponent’s evidence is a dismissal on the merits unless. it specifies otherwise. , Re athena Q. Since no motion for suminary judgment with respect to the — cause of action pleaded, in-the supplemental complaint was ever brought, there was no evidence at all adduced in plain-: — tiffs’ favor. And, as the proposed third cause of action . was not even “dismissed,” this would seem to be an a. _\ fortioré case: for concluding that disposal of the supple- mental:complaint was not, on the merits. Finally, although the principles of res judicata should not be frugally: applied, ef. United States v. Munsingwear, Inc., 340 U. 8. 36, 38 ©. : (1950), a reasonable doubt as. to what was ‘decided ‘in the _ —____first_actionshould preclude the drastic remedy of fore- . *, ¢losing a party from litigating an essentfal issue.” Cf... | Cleary, Res Judicata Reexamined, 57 Yale L. J. 339 (1948). - Under these circumstances, while, it is conceivable that in denying leave to file the supplemental complaint, Justice — Ringrose decided on the merits that the three payments in. °9 ee _ This would dispoge of appeliee’s contention’ that Aagel v. Bullington, ~ |g 330 U. 8. 183 (1947), controlf here; the case is also inapposite because we do ot have here, in any event, the closing of the door by the state to an entire class of suits. ~~ ei Aveo and Replens r 1962 were not fraudulent transfers, ' the proposition is no persuasive.* | + ‘In summary, we conclude that there is no res judicata ee bar to the trustees” action on grounds other than usury ue. - based on the three payments: which baa cia ie a _ Andement —— . - \ = ss - ° $ zs .* i kog { , oe , ; 7° ‘ ° . . » ! : . + = - = ° . P . ag . s Z « : ) Y - : a *- Fes i \, a ¢ \ =, oS + as ; 4 e * *. X ‘ 2 Y ~ . - t \ ae ye * s ; tenet a ees * \ « Y + \ . MK > of S . ¥ : Y e— ee ee ; : a 2 . ——aaeee << a ; a a ° ‘ - “eae . %, ¢ ° é . e ° . 4 eo 2 ‘. d : © get I at ; ee ~ eT ee a “ie tain, st Mauka) the pnaing 40 tho Sintin ataiania i ; on the party asserting the bar of res judicata. Hyslop v. United States, ¢ 261 F. 2d 786 (8th Cir. 1958); Peckham v. Family Loan.Co., 196 F. . = Drage o yatiiganer aghondl gatamnenegnigee doves creat at Mack, ayy a ne ne 1912). eta a --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_0009%3A2. Public record. Not legal advice.