RAYMOND E. McMILLEN, JR. v. MARC KADIS

Introduction

Plaintiff Raymond McMillen filed this action, seeking a declaration that a 2002 deed from Mr. McMillen to defendant Marc Kadis for the property at 17 Bow Street in Wellesley is an equitable mortgage. Mr. McMillen also seeks a declaration that, upon payment of a certain sum of money, that mortgage will be discharged and he will become the sole owner of the property. Mr. Kadis claims that the plaintiff is barred from seeking such declarations due to the doctrines of issue and claim preclusion and, accordingly, filed a motion to dismiss. For the reasons set forth below, that motion is ALLOWED.

Facts

In 1971, plaintiff Raymond McMillen purchased the property at 17 Bow Street in Wellesley. Due to financial difficulties, Mr. McMillen filed for bankruptcy in 2002. On December 2, 2002, Mr. McMillen and defendant Marc Kadis entered into a purchase and sale agreement whereby Mr. Kadis was to pay $250,000 total ($150,000 at closing and $100,000 in the form of a mortgage in favor of Mr. McMillen, with payment due in full seven years later) for the property. The agreement also enabled Mr. McMillen to lease the property for five years and stipulated that Mr. McMillen had an exclusive option to purchase the property during that five-year lease period for fair market value. At a hearing in the Bankruptcy Court on a motion for leave to sell the property, the terms of the agreement were modified by the parties in order for Mr. McMillen to have sufficient funds to satisfy then-existing mortgages on the property (increasing the cash at closing to $175,000 and reducing the mortgage to $75,000). After such modifications were made, the agreement was approved by the court. A closing then took place [Note 1] and the property was conveyed to Mr. Kadis. Thereafter, the bankruptcy case was finalized.

Subsequently, Mr. McMillen demanded that Mr. Kadis execute the mortgage pursuant to their agreement, but Mr. Kadis did not do so. Mr. McMillen also offered to purchase the property pursuant to the terms of the agreement, but Mr. Kadis did not accept his offer. Mr. McMillen then filed a motion to reopen the bankruptcy proceeding on April 21, 2004 to enable Mr. McMillen to file an adversary proceeding against Mr. Kadis. That motion was allowed and on April 22, 2004, Mr. McMillen filed a complaint in the Bankruptcy Court (1) claiming that Mr. Kadis breached the terms of the agreement approved by the Bankruptcy Court by failing to pay the $75,000; (2) seeking a rescission of the agreement and reimbursement of the $175,000; (3) asserting a Chapter 93A, § 9 claim for alleged unfair and deceptive actions; (4) claiming Mr. Kadis’ actions were fraudulent and deceitful; and (5) claiming Mr. Kadis did not pay fair market value for the property and would therefore be unjustly enriched if allowed to keep the property. [Note 2] Complaint, United States Bankruptcy Court, Eastern Division, District of Massachusetts, Adversary Proceeding No. 04-1140 at 2-3 (April 22, 2004) (hereinafter, the “Bankruptcy Case”).

On May 7, 2008, the Bankruptcy Court issued a Memorandum of Decision. In that decision, the Bankruptcy Court found, among other things, that (1) “McMillen and Kadis entered into a purchase and sale agreement”; (2) “at some point after the sale hearing, Kadis informed McMillen that he would not pay anything beyond the initial $175,000 payment”; (3) there was “no writing or other evidence that McMillen agreed to this modification”; (4) “[n]otwithstanding Kadis’s announcement that he would not pay McMillen anything more than the initial $175,000 cash payment, McMillen did in fact go forward with the sale” in order “to avert loss of the house to foreclosure, to preserve his right to live in it for the term of the lease with Kadis, and to ensure himself the right to buy the property back from Kadis at a later date”; (5) the closing took place on December 20, 2002; (6) Mr. Kadis failed to execute a mortgage for the $75,000 and decided to not comply with this requirement of the agreement after the agreement was entered and modified by the court; (7) Mr. McMillen lived at the property for five years, which “constituted part of the purchase and sale agreement”; (8) Mr. McMillen, however, failed to pay the rent as required in the agreement; [Note 3] and (9) Mr. McMillen offered to purchase the property for $195,000, but Mr. Kadis rejected that offer. Memorandum of Decision, Bankruptcy Case at 2, 4-6, 8 (May 7, 2008) (emphasis in original). The court noted that the agreement entered into by the parties and approved by the court was a purchase and sale agreement and it was “effective and binding on both parties” after the court approved it. Id. at 9. The court held that “Kadis remains bound to make [the $75,000] payment on December 20, 2009, the seventh anniversary of closing. As the date for payment has not yet arrived, Kadis has not yet breached his obligation to pay. However, Kadis has already breached his obligation to give a mortgage . . . .” Id. at 10. The court further held that Mr. McMillen failed to prove a basis for rescinding the purchase and sale agreement. Id. at 11. The court also dismissed Mr. McMillen’s G.L. c. 93A, § 9 claim since he failed to make a written demand for relief as is required by the statute. Id. at 12. Finally, since “[t]he Court . . . determined that McMillen is entitled to relief for breach of contract, the Court need not address the merits of the count for unjust enrichment.” Id.

For Mr. Kadis’ counterclaims, the Bankruptcy Court found that Mr. Kadis failed to establish fraud, but found that Mr. McMillen breached the contract by failing to pay rent. Id. at 13. Since there was “an adequate remedy at law, no further remedy is available in equity” and the court thus found that Mr. Kadis’ unjust enrichment claim was moot. Id. at 14. Finally, the court found that Mr. Kadis failed to provide any evidence regarding his claims that Mr. McMillen breached the lease by preventing him access. Since the issue of possession of the property was not addressed in post-trial submissions, the court noted that “the judgment herein shall be without prejudice to Kadis’s seeking possession through the appropriate avenue in the state courts.” Id. at 15.

Final judgment was entered in the Bankruptcy Court on the Adversary Proceeding on May 7, 2008, ordering and adjudging that Mr. Kadis recover $9,000 from Mr. McMillen. Judgment, Bankruptcy Case (May 7, 2008) (that sum was determined based upon Mr. McMillen owing Mr. Kadis $84,000 for rent, offset by Mr. Kadis owing Mr. McMillen $75,000 for breach of his obligation pursuant to the court-approved agreement to grant a mortgage on the property in that amount to Mr. McMillen as part of its purchase price).

On October 7, 2008, Mr. McMillen filed a complaint in this court, claiming that the deed from Mr. McMillen to Mr. Kadis was not a conveyance, but, instead, an equitable mortgage and seeking a declaration that the equitable mortgage would be discharged upon the payment of a certain sum and that Mr. McMillen is the true owner of the property at 17 Bow Street.

Mr. Kadis has filed a motion to dismiss pursuant to Mass. R. Civ. P. 12(b)(6), claiming that Mr. McMillen’s claims are barred because of the final judgment entered in the Bankruptcy Case.

Standard of Review of a Motion to Dismiss

The standard for review of a motion to dismiss was “refine[d]” by the Supreme Judicial Court in Iannacchino v. Ford Motor Company. 451 Mass. 623 , 635-36 (2008). Previously, a plaintiff’s complaint was reviewed in accordance with the “often-quoted language,” id., that “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Nader v. Citron, 372 Mass. 96 , 98 (1977) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)) (emphasis added). In Iannacchino, the court adopted the federal approach that a complaint must contain “factual ‘allegations plausibly suggesting (not merely consistent with)’ an entitlement to relief, in order to ‘reflect[] the threshold requirement of [Fed. R. Civ. P.] 8(a)(2) [Note 4] that the plain statement possesses enough heft to sho[w] that the pleader is entitled to relief.’” 451 Mass. at 636 (quoting Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1966 (1977)) (alterations in original). Stated differently, “to survive a motion to dismiss, a complaint must contain factual allegations ‘enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true.’” Flomenbaum v. Commonwealth, 451 Mass. 740 , 751, n.12 (2008) (quoting Bell Atl. Corp. v. Twombly, 127 S. Ct. at 1965).

When evaluating the motion, “the allegations in the complaint, as well as such inferences as may be drawn therefrom in the plaintiff[’]s favor, are to be taken as true.” Iannacchino, 451 Mass. at 625, n.7. The court can “take into consideration the allegations in the complaint, although matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint, also may be taken into account.” Schaer v. Brandeis University, 432 Mass. 474 , 477 (2000) (internal quotations and citations omitted). “However, we do not accept legal conclusions cast in the form of factual allegations.” Id. Furthermore, a party’s characterization of documents cannot contradict the documents themselves. See Ng. Bros. Constr., Inc. v. Cranney, 436 Mass. 638 , 647-48 (2002).

Analysis

Although “[r]es judicata is an affirmative defense to be raised by answer and is not generally an appropriate matter to be raised in a motion to dismiss under rule 12(b)(6) . . . . we note that in certain circumstances the defense of former adjudication can be presented in a rule 12(b)(6) context where all of the materials necessary for the decision are official records available to the judge ruling on the motion and not subject to dispute, and can be read together with the complaint.” Boyd v. Jamaica Plain Co-Operative Bank, 7 Mass. App. Ct. 153 , 156-57, n.7 (1979) (internal citations omitted, emphasis added). Here, Mr. Kadis did raise the defense of both issue and claim preclusion in his answer. In addition, the complaint and the decision in the Bankruptcy Case are matters of public record, are part of the record before me in this case, and can be read together with the complaint in this case. Furthermore, the facts of the case are generally not in dispute. Accordingly, Mr. Kadis’ motion to dismiss based upon res judicata can be determined on the record before me.

“‘Res judicata’ is the generic term for various doctrines by which a judgment in one action has a binding effect in another. It comprises ‘claim preclusion’ and ‘issue preclusion.’ ‘Claim preclusion’ . . . prohibits the maintenance of an action based on the same claim that was the subject of an earlier action between the same parties or their privies. ‘Issue preclusion’ . . . prevents relitigation of an issue determined in an earlier action where the same issue arises in a later action, based on a different claim, between the same parties or their privies.” Heacock v. Heacock, 402 Mass. 21 , 23 n.2 (1988). As described in greater detail below, I find that Mr. McMillen is precluded from bringing his claims in this case based upon the judgment in the Bankruptcy Case. Accordingly, I need not and do not address whether Mr. McMillen is estopped from asserting the issues in this case based upon issue preclusion.

“The doctrine of claim preclusion makes a valid, final judgment conclusive on the parties and their privies, and bars further litigation of all matters that were or should have been adjudicated in the action.” Id. at 23; see also Kobrin v. Bd. of Registration in Medicine, 444 Mass. 837 , 843 (2005). “This is so even though the claimant is prepared in a second action to present new evidence or legal theories to support his claim, or seeks different remedies.” Heacock, 402 Mass. at 23. “This ‘is based on the idea that the party to be precluded has had the incentive and opportunity to litigate the matter fully in the first lawsuit.’” Kobrin, 444 Mass. at 843 (quoting O’Neill v. City Manager of Cambridge, 428 Mass. 257 , 259 (1998)). “For claim preclusion . . . three elements are required: (1) the identity or privity of the parties to the present and prior actions; (2) identity of the cause of action; and (3) prior final judgment on the merits.” TLT Construction Corp. v. A. Anthony Tappe and Assoc., Inc., 48 Mass. App. Ct. 1 , 4 (1999) (internal citations and quotations omitted).

It is undisputed that the identity of the parties in this case and the Bankruptcy case are identical. Furthermore, a final judgment on the merits was entered in the Adversary Proceeding in the Bankruptcy Case. Accordingly, whether claim preclusion bars Mr. McMillen’s claims in this case rests solely on the second prong – the “identity of the cause of action.” Id. I find and rule that the cause of action is identical. In both cases, the underlying transaction and material facts are identical – a court-approved agreement was entered into between Mr. McMillen and Mr. Kadis for the conveyance of the property, Mr. McMillen conveyed the property to Mr. Kadis, Mr. McMillen leased it back for five years pursuant to that agreement and a separate lease, and both parties breached the terms of the agreement. In addition, Mr. McMillen seeks the same relief in this case as he did in the Bankruptcy Case – a deed to the property after payment of a certain sum of money. The only difference between the Bankruptcy Case and this action is Mr. McMillen’s advancement of a new theory.

Mr. McMillen’s new theory in this case – that the agreement was not actually a purchase and sale agreement resulting in the conveyance of the property to Mr. Kadis, but, instead, was an equitable mortgage – should have been raised in the Bankruptcy Case. Boyd, 7 Mass. App. Ct. at 160 (“[t]he statement of a different form of liability is not a different cause of action, provided it grows out of the same transaction, act, or agreement, and seeks redress for the same wrong . . . and . . . [a] party cannot preserve the right to bring a second action after the loss of the first, merely by having circumscribed and limited the theories of recovery opened by the pleadings in the first”) (internal citations omitted). As noted above, the Bankruptcy Court determined that the parties entered into a “court-approved purchase and sale agreement,” “McMillen transferred his interest in the property,” “McMillen and his family occupied the property for the five-year duration of the lease,” “McMillen satisfied his obligation to deliver the property free and clear of liens,” “[t]he purchase and sale agreement was negotiated, entered into, and closed in Massachusetts; it concerns the sale and rental of Massachusetts real estate,” and the parties both breached the contract. Memorandum of Decision, Bankruptcy Case at 1, 5, 6, 8. It is clear that the Bankruptcy Court determined that there was a valid contract to sell the property to Mr. Kadis and that Mr. McMillen’s right to live at the property was based upon a lease. Whatever Mr. McMillen’s intent may have been, the clear terms of the court-approved agreement resulted in the conveyance of the property to Mr. Kadis and only gave Mr. McMillen an option to repurchase the property within the five-year lease period. In order to assert a contrary interpretation of the agreement to claim that the deed to Mr. Kadis was actually an equitable mortgage, Mr. McMillen should have brought such a claim in the first action in the Bankruptcy Court. [Note 5] Indeed, the theory that the deed was an equitable mortgage is mutually exclusive to the theory that a valid purchase and sale was entered into that resulted in the conveyance of the property to Mr. Kadis. Accordingly, Mr. McMillen’s claims in this case are barred based upon claim preclusion. Even taking “all the allegations in the complaint [as] true,” those allegations do not “plausibly suggest . . . an entitlement to relief” since Mr. McMillen’s claims are barred. Flomenbaum, 451 Mass. at 751, n.12; Iannacchino, 451 Mass. at 636.

Mr. McMillen attempts to avoid this result by stating (for the first time) in his opposition to the motion to dismiss “that the present action is defensive, and sounds in recoupment.” Objection to Motion to Dismiss at 3 (April 24, 2009). Mr. McMillen claims that Mr. Kadis has “commenced a summary process action in the Dedham District Court,” the recoupment defense is “to defend against Kadis’ predatory efforts to evict him,” and because that court does not have subject matter jurisdiction over recoupment actions, it is necessary to bring this claim in the Land Court. Id. at 3-4. This argument fails because Mr. McMillen did not plead an action for recoupment in his complaint. He cannot now raise this novel theory to avoid dismissal of this action. In addition, the record indicates that the action in District Court has been dismissed. [Note 6] Finally, even as Mr. McMillen acknowledges, “McMillen has no affirmative claims to make against Kadis.” Id. at 4. Accordingly, even if Mr. McMillen was correct that res judicata would not bar his recoupment defense, the motion to dismiss would still have to be granted because Mr. McMillen has failed “to state a claim upon which relief can be granted.” Mass. R. Civ. P. 12(b)(6) (emphasis added).

Conclusion

For the foregoing reasons, Mr. Kadis’ motion to dismiss is ALLOWED. Mr. McMillen’s claims are hereby DISMISSED in their entirety, with prejudice. Judgment shall enter accordingly.

SO ORDERED.

By the court (Long, J.)