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SCOPIA MORTGAGE CORPORATION v. GREENTREE MORTGAGE COMPANY

December 22, 2000

SCOPIA MORTGAGE CORPORATION AND FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER OF SECURITY SAVINGS BANK, SLA AND SECURITY FEDERAL SAVINGS BANK, PLAINTIFFS/COUNTERCLAIM DEFENDANTS,
V.
GREENTREE MORTGAGE COMPANY, L.P., DEFENDANT/COUNTERCLAIM PLAINTIFF.



The opinion of the court was delivered by: Jerome B. Simandle, United States District Judge

OPINION AND ORDER

I. INTRODUCTION

This Opinion addresses the motion of plaintiffs/counterclaim defendants to dismiss all remaining counterclaims against them. This case, which began in 1994, involves a 1992 transaction in which defendant/counterclaim plaintiff Greentree Mortgage Company, L.P. ("LP") purchased most of the assets and assumed most of the liabilities of plaintiff/counterclaim defendant Greentree Mortgage Company, now known as Scopia Mortgage Company ("GMC"). Following extensive motion practice over the years, only certain of LP's counterclaims remained for trial. By agreement of the parties, one aspect of the case — pertaining to the availability and amount of damages upon LP's breach of contract claim — was tried before the Court sitting without a jury on November 30, December 1, December 14, and December 15, 1998. The trial involved a dispute arising from a complex transaction between the parties, in which defendant LP counterclaimed against plaintiffs for damages allegedly suffered for breach of contract. LP alleged that GMC misstated or misrepresented the nature of a New Jersey tax liability which it carried on its books, such that LP overpaid upon the purchase by the amount of this past due tax liability in the sum of $1,543,923.45. Although GMC had not accurately characterized the New Jersey tax liability upon its books — it was a past due liability and not a deferred tax liability as indicated — the Court found after trial that the misstatement did not cause LP to pay any more for the assets and liabilities of GMC which it acquired and as contemplated by the parties themselves. The Court's post-trial findings of fact and conclusions of law were entered on August 22, 2000.

The history of this litigation may be summarized as follows. Plaintiff GMC originally brought this lawsuit against LP on March 14, 1994. The Complaint alleged that defendant LP improperly received $939,696.16 more in cash than it was due at closing and improperly retained certain funds from mortgage payments it was obligated to forward to plaintiff. The Complaint asserted claims of breach of contract, unjust enrichment, and civil conversion. Defendant LP counterclaimed, alleging plaintiffs fraudulently misrepresented the nature of GMC's New Jersey tax liability, calling it a deferred tax liability instead of taxes past due, which allegedly constituted a breach of the Purchase Agreement and caused defendant to pay an inflated purchase price for GMC's assets by $1,543,923.45. LP's counterclaims included fraudulent inducement to pay $1,543,923.45, negligent misrepresentation that the $1,543,923.45 was a deferred tax liability, misrepresentation of the nature of the tax liability, and breach of contract. LP also included a claim for attorneys' fees.

In an Opinion and Order dated September 22, 1994, the Court granted defendant's motion to dismiss plaintiffs' claims arising from the alleged overpayment at closing of $939,696.16.*fn1 Plaintiffs' remaining claims were dismissed by stipulation of the parties. Only LP's counterclaims remained.

In an Opinion and Order dated June 25, 1998, this Court addressed various motions which the parties filed with regard to LP's counterclaims. The Court denied plaintiffs' motion for summary judgment on defendant's First, Second, Third, Fourth, Fifth, and Seventh Counterclaims. The Court granted in part defendant LP's motion for summary judgment on its Fifth Counterclaim for breach of contract, to the extent that the Court found that plaintiffs' representation of GMC's New Jersey State tax liability as "deferred" on Schedule 2-9 to the Purchase Agreement was incorrect and material to the Purchase Agreement and constituted a breach of that Agreement as a matter of law. However, the Court denied in part defendant LP's motion for summary judgment on its Fifth Counterclaim to the extent to which LP sought summary judgment granting it damages. The Court found material disputes of fact precluded the finding that the breach had caused LP to suffer any damages or to fail to receive the full benefit of the bargain. Additionally, this Court denied LP's motion for summary judgment on its Sixth Counterclaim (for fees in defending against plaintiffs' claims) and granted plaintiffs' motion for summary judgment on that same counterclaim, such that plaintiffs were not liable for fees LP incurred in defending against plaintiffs' claims.

By agreement of the parties, this case went forward to trial solely on the issue of whether LP suffered damages, such that this Court could completely resolve LP's Fifth Counterclaim for breach of contract. The Court found that LP did not prove that the contractual misstatement of the nature of the tax liability caused LP to suffer damages and entered judgment in favor of GMC on the Fifth Counterclaim (breach of contract). The Court's findings of fact and conclusions of law judgment was entered on August 22, 2000.

Presently before this Court is the motion of the plaintiffs/counterclaim defendants to dismiss LP's five remaining counterclaims, specifically the First (fraud), Second (fraudulent concealment), Third (negligent misrepresentation), Fourth (misrepresentation), and Seventh (for attorney's fees) and for entry of a final judgment in this matter. The counterclaim defendants, movants herein, are collectively referred to as "GMC," because the interests of GMC and FDIC are the same for purposes of defending these counterclaims. The arguments of the parties, asserted in their briefs and during a November 21, 2000 telephone conference, are straightforward. GMC argues that because the Court, in its August 22, 2000 findings of fact and conclusions of law, determined that LP suffered no damages as a result of the contractual misstatement that led to this litigation, issue preclusion prevents further consideration of defendant's remaining counterclaims, all of which require a finding of damages arising from that misstatement to succeed. LP argues that issue preclusion does not bar litigation of the remaining counterclaims because the only issue determined by this Court was whether LP paid $1,543,923.45, the amount alleged to be in excess of the actual price of the transaction. Alternatively, LP argues that even if this Court ruled that LP suffered no compensatory damages, claims for punitive and nominal damages could still lie against GMC, and therefore be the damages basis required for the remaining counterclaims. For the reasons discussed herein, plaintiffs' motion to dismiss defendant's remaining counterclaims will be granted and, because no further issues remain to be decided in this case, final judgment will be entered.

II. DISCUSSION

A. The December, 1998 Trial

Following the four-day bench trial on the breach of contract counterclaim, the Court made the specific finding that "not only did LP not have to pay $1,543,923.45 under the terms of the contract itself, but subsequent events show that it did not in fact pay that amount as it alleged." Scopia Mortgage Corporation v. Greentree Mortgage Co., No. 94-1197, slip op. at 18 (D.N.J. Aug. 22, 2000). The Court additionally concluded that:

LP was not damaged because . . . it did not in fact pay $1,543,923.45 of its own money to [Security Savings Bank, SLA] to cover the state tax liability. It bargained, as shown as far back as the Letter of Intent, to be free from the tax liability, and it was. . . . Moreover, even if LP had paid $1,543,923.45, it still was not damaged. LP is not responsible for the New Jersey state tax liability . . . and it was stipulated that such liability remained with GMC.

Id. at 28-29 (citations omitted, emphasis added). The Court summarized its ultimate finding to be "that this misstatement did not cause LP to pay any more for the assets and liabilities of GMC which it acquired and as contemplated by the parties themselves." (Id. at 2.) Because the Court found that LP incurred no damages, nominal, compensatory or otherwise, as a result of GMC's breach, and because damages is a necessary element for a breach of contract cause of action, (id. at 34), the Court made the legal conclusion that LP had not met its burden of proof on its Fifth Counterclaim for breach of contract and dismissed the counterclaim with prejudice, ...


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