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Published: April 17, 2023, 2:58 p.m.

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Litigants May Not Try Again After Losing

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The plaintiffs in this action are a group of special-purpose entities\\n that acquired various commercial properties and funded those \\nacquisitions with loans. The loans required the plaintiffs, as \\nborrowers, to obtain residual value insurance policies guaranteeing \\npayment of the outstanding loan to the lenders if the borrowers did not \\nsatisfy the loan at maturity. The defendants are the insurers under \\nthose policies and related entities. The parties litigated the dispute \\nto final judgment in Michigan and Idaho and filed a new suit in Delaware\\n seeking the remedies they were not allowed to receive in Michigan and \\nIdaho.

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In PVP Aston LLC, et al v. \\xa0Financial Structures Limited, et al.,\\n C. A. No. N21C-09-095 AML CCLD, Superior Court of Delaware (March 31, \\n2023) the court was faced with a claim of collateral estoppel \\u2013 that is \\u2013\\n once you lose in one court you cannot go to another court for a \\ndifferent result on the same issue.

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Plaintiffs are thirty-four special-purpose entities that obtained \\ncommercial loans (each, a \\u201cLoan\\u201d) from several lenders or agents of \\nlenders (each, a \\u201cLender\\u201d) to finance the sale and leaseback of \\nproperties formerly owned by Rite-Aid drugstores (each, a \\u201cProperty\\u201d). \\nThe Loans were evidenced and secured by a mortgage, note, and related \\ninstruments for each Property (the \\u201cLoan Documents\\u201d). Each Loan required\\n a considerable \\u201cballoon\\u201d payment when the Loan matured in 2020 or 2021.

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The Michigan and Idaho courts both disagreed with the Borrowers\\u2019 \\nposition that the parties intended the Insurer\\u2019s right to a Loan \\nassignment to be conditioned on the performance of an appraisal. The \\nMichigan Court also rejected Plaintiff\\u2019s effort to recover breach of \\ncontract damages because the Policy provides that \\u201cthe [Insurer] shall \\nhave no liability to [the Plaintiff] except to make payment to the \\nAdditional Insured in accordance with this Policy.\\u201d The Idaho Court \\nsimilarly found that the breach of contract claim was futile. In \\naddition, having concluded the ICA was enforceable, the Idaho Court \\nrejected the claim that FSL allegedly sold unenforceable agreements.

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Under Delaware law, a Delaware court will give the judgments of \\nanother state court the same preclusive effect as would a court in that \\nstate. Collateral estoppel law in Idaho and Michigan is substantially \\nthe same as the law in Delaware. Delaware follows the majority rule that\\n an appeal does not render a judgment non-final for purposes of res judicata\\n or collateral estoppel. Michigan and Idaho law control the question of \\nfinality for purposes of this Court\\u2019s collateral estoppel analysis, and \\nMichigan and Idaho also follow the majority rule.

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Finally, it is apparent that the parties had a full and fair \\nopportunity to litigate the issues addressed in the Michigan and Idaho \\nactions. The decisions issued by those courts describe the cases\\u2019 \\nprocedural history and reflect that the parties had the opportunity to \\nfairly present their positions. Those courts fully analyzed and \\nconsidered the parties\\u2019 multifaceted arguments. The Michigan Borrower \\nmoved for reconsideration of the April 22, 2022 decision but did not \\nargue that it had lacked an opportunity to fully litigate the issues. \\nRather, it argued the Court erred in its analysis of the law regarding \\nclogging the equity of redemption.

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Defendants\\u2019 Motion to Dismiss is Granted. Accordingly, Plaintiffs\\u2019 Motion for Partial Summary Judgment is Denied As Moot.

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The old children\\u2019s motto that says one must try and try again when \\nthey fail does not apply to litigation. The insurers in this case were \\nentitled to their subrogation rights to require payment of the loan and \\nget title to the property. Once the plaintiffs\\u2019 lost in Idaho and \\nMichigan they did not have the right to bring the same claims in \\nDelaware and were prevented by the application of the collateral source \\ndoctrine.

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(c) 2023 Barry Zalma & ClaimSchool, Inc.

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