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Appeals Court of Massachusetts.



Decided: March 03, 2021

By the Court (Kinder, Henry & Lemire, JJ.2)


The plaintiff, East Fourth Street LLC (East Fourth), brought the underlying action against the defendants, Endeavor Capital Funding LLC (Endeavor) and Capital Trust LLC (Capital Trust), alleging a violation of the criminal usury statute, G. L. c. 271, § 49. A Superior Court judge allowed the defendants' motion to dismiss pursuant to Mass. R. Civ. P. 12 (b) (6), 365 Mass. 754 (1974), reasoning that East Fourth's claim was barred by the principle of res judicata and by the statute of limitations. We affirm.

Background. We summarize the allegations in the operative complaint and the items appearing in the record of the case. See Schaer v. Brandeis Univ., 432 Mass. 474, 477 (2000). In 2009 and 2010, as manager of East Fourth, James Dickey executed a promissory note in the amount of $450,000, and a modification in the amount of $500,000, in favor of Capital Trust. The note provided that, in the event of default, interest would accrue at the rate of twenty-four percent per annum with a late fee in the amount of five percent of any payment not made. The note was secured by a mortgage on properties owned by East Fourth. Thereafter, Capital Trust assigned its interest in the note and mortgage to Endeavor. In July of 2012, after East Fourth defaulted on the note, Endeavor foreclosed on the mortgage. Years of litigation ensued.

Relevant here, on August 6, 2012, East Fourth commenced a Superior Court action against the defendants alleging that the 2009 loan and 2010 modification violated the criminal usury statute. That action was ultimately dismissed on July 14, 2014, for lack of prosecution. In 2016, East Fourth conveyed its interest in the mortgaged premises to Dickey, who then commenced two Land Court actions against the defendants challenging the validity of the assignment to Endeavor and the foreclosure. A Land Court judge dismissed the actions concluding that the assignment was valid, and the validity of the foreclosure had been previously litigated “in [a] summary process action that went to final judgment in the Housing Court.” Dickey sought leave to file late notices of appeal from these decisions, which the Land Court judge denied. The denials were affirmed by another panel of this court, see Dickey v. Petros, 96 Mass. App. Ct. 1115 (2020), and Dickey's request for further appellate review was denied.

On May 30, 2019, East Fourth filed the instant complaint, verified by Dickey, again seeking an order that the 2009 loan and 2010 modification were void because they violated the criminal usury statute. See G. L. c. 271, § 49 (c). The motion judge allowed the defendants' motion to dismiss, concluding that the claim was barred by res judicata and the statute of limitations.3 As to res judicata, the judge reasoned that East Fourth's usury claim could have and should have been raised in the earlier Land Court actions.

Discussion. To survive a motion to dismiss, the facts contained in the complaint and reasonable inferences drawn therefrom must plausibly suggest an entitlement to relief. See Flagg v. AliMed, Inc., 466 Mass. 23, 26-27 (2013), quoting Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008). “We review the allowance of a motion to dismiss de novo, accepting the allegations in the complaint as true and drawing all reasonable inferences in the plaintiff's favor.” Harrington v. Costello, 467 Mass. 720, 724 (2014).

The doctrine of res judicata encompasses both “claim preclusion” and “issue preclusion.” Heacock v. Heacock, 402 Mass. 21, 23 n.2 (1988). Relevant here, 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. Claim preclusion “requires three elements: ‘(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.’ ” Kobrin v. Board of Registration in Med., 444 Mass. 837, 843 (2005), quoting DaLuz v. Department of Correction, 434 Mass. 40, 45 (2001).

Here, East Fourth alleged in a Superior Court action in 2012, that the 2009 note and 2010 modification were usurious. Its complaint was dismissed. Although the dismissal was without prejudice and therefore not a final adjudication on the merits, see Arsenault v. Bhattacharya, 89 Mass. App. Ct. 804, 808 n.5 (2016), East Fourth's assertion of the claim demonstrated that it was aware that the usury statute provided a potential defense to Endeavor's efforts to enforce the note and mortgage. Since Endeavor's right to enforce the mortgage was squarely at issue in the subsequent Land Court actions, Dickey and East Fourth had “a full and fair opportunity” in those proceedings to challenge the debt as usurious. Bernier v. Bernier, 449 Mass. 774, 797 (2007). They did not.4

We need not consider East Fourth's argument that Dickey lacked standing to raise the issue on East Fourth's behalf in the Land Court because it was raised for the first time in its reply brief. See Bassett v. Blanchard, 406 Mass. 88, 90 n.1 (1989). Were we to reach the merits of the argument, East Fourth would fare no better. The record shows that Dickey signed the note, the modification, and the mortgage on East Fourth's behalf, and that he was involved in all subsequent litigation involving the defendants, the mortgaged properties, and East Fourth. In these circumstances, Dickey clearly stood in privity with East Fourth. See Bui v. Ma, 62 Mass. App. Ct. 553, 561-562 (2004) (successor in interest to property meets privity requirement for res judicata). Because res judicata bars every issue that was or could have been litigated in an earlier proceeding, see Ratner v. Rockwood Sprinkler Co., 340 Mass. 773, 775 (1960), and because the Land Court actions concerned the validity of the foreclosure, “all claims regarding that issue, including the [underlying debt], were precluded by that litigation,” Bui, supra at 562. Accordingly, East Fourth's usury claims were barred by the doctrine of res judicata and there was no error in the judgment of dismissal.5

Judgment affirmed.


3.   The defendants also argued that the loans were at all times registered with the Attorney General, which rendered the usury statute inapplicable. See G. L. c. 271, § 49 (d).

4.   We note that in dismissing Dickey's claims in the Land Court, the judge relied, in part, on the preclusive effect of the earlier summary process action in the Housing Court. In addition to the Land Court actions, East Fourth could and should have raised a usury challenge to the underlying debt in connection with the action for summary process.

5.   Because we decide that the action was barred by res judicata, we need not reach the parties' arguments based on (1) the statute of limitations, or (2) the inapplicability of the usury statute based on Capital Trust's notice to the Attorney General regarding the loan.

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