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MATHON v. MARINE MIDLAND BANK

February 4, 1995

SHEILA MATHON and HANK MATHON, Husband and Wife, Plaintiffs, against MARINE MIDLAND BANK, N.A. HONGKONGBANK AND SHANGHAI BANK CORPORATION LIMITED, DUANE LEONARD, KAREN KARATES, NEIL GROSS, FRANK CULHANE, ESQ., MARINE MIDLAND MORTGAGE CORP., LAURA GLULSEPPOTTI, PHILIP IRWIN AARON, P.C., SHAPIRO & KREISMAN, THE LAW FIRM, GERALD SHAPIRO, DAVID S. KREISMAN, DOMINICK VINCESLIO, STANLEY STUART, PAUL RUDDEN, FELICIA RENEE DURKIN, "JOHN DOE" ONE, "JOHN DOE" TWO, "JOHN DOE" THREE, "JOHN DOE" FOUR, Jointly and Severally, Defendants.


The opinion of the court was delivered by: ARTHUR D. SPATT

 SPATT, District Judge.

 This action arises out of a residential lease agreement "with option to buy" entered into between the plaintiffs pro se, Hank Mathon and Sheila Mathon who are husband and wife ("the plaintiffs" or "the Mathons"), and a person identified by the plaintiffs as the owner of the residence named Stanley Stuart ("Stuart"). The plaintiffs allege that the defendants acted in violation of the civil Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO").

 The plaintiffs move for entry of default judgment pursuant to Fed. R. Civ. P. 12(a) and 15(a) against the following defendants contending that they did not interpose an answer to the plaintiffs' Amended Complaint or otherwise move within the time allotted by the civil rules: Marine Midland Bank, N.A., Hongkong and Shanghai Bank Corp., Ltd., Marine Midland Mortgage Corp., Duane Leonard, Laura Glulseppotti, Shapiro & Kreisman, Gerald Shapiro, David S. Kreisman, Karen Karates, Neil Gross, Frank Culhane Esq., Felicia Renee Durkin and Dominick Vinceslio. The defendants Philip Irwin Aaron, P.C. and Paul Rudden, served an answer on July 12, 1994.

 Two motions to be relieved of default pursuant to Fed. R. Civ. P. 55(c) and 60(b) are before the Court from: 1) Shapiro & Kreisman, Gerald Shapiro, David S. Kreisman, Karen Karates, Neil Gross, Frank Culhane, Felicia Renee Durkin and Dominick Vinceslio (the "Shapiro defendants"); and 2) Marine Midland Bank, N.A., Marine Midland Mortgage Corp. and Duane Leonard (the "Marine Midland defendants"). In addition, Philip Irwin Aaron, P.C. and Paul Rudden (the "Aaron defendants"), the Shapiro defendants and the Marine Midland defendants move for an order dismissing the Amended Complaint pursuant to: 1) Fed. R. Civ. P. 12 (b)(6) for failure to state a cause of action; 2) Fed R. Civ. P. 9(b) for failure to plead fraud with particularity; and 3) 12(b)(1) for lack of subject matter jurisdiction over the pendant state claims.

 BACKGROUND

 In November, 1992, the Mathons signed a one year lease for a residence at 17 Neptune Place, Massapequa, New York (the "premises") with its owner, Stanley Stuart ("Stuart"). The Mathons allege that they had a verbal agreement with Stuart to purchase the premises for $ 200,000.00 and to commence repairs at their own expense upon moving in. The Mathons commenced residing at the premises in November of 1992, relocating from New Jersey.

 The plaintiffs allege that much time, trouble and expense was involved in the move. However, those facts are irrelevant to the Marine Midland defendants, the Aaron defendants and the Shapiro defendants because there is no claim that those defendants had anything to do with the original lease transaction. While Stuart is named as a defendant, it is not claimed that Stuart was a member of the alleged conspiratorial RICO enterprise.

 The Mathons repeatedly refer to this $ 14,000.00 figure in the Amended Complaint and conclude that they were mislead and induced into spending it. The Court notes some confusion or contradiction regarding this issue in the Amended Complaint. It does not follow that the Marine Midland, Aaron and/or Shapiro defendants could have induced the plaintiffs to spend $ 14,000.00 to repair the premises if the plaintiffs made the $ 14,000.00 expenditure before they had contact with the Marine Midland, Aaron and/or Shapiro defendants.

 I. The Aaron defendants - February, 1993 to October, 1993

 The Aaron defendants served as legal counsel to Marine Midland in a foreclosure action against Stuart. The Mathons' first contact by phone with the Aaron defendants was in February of 1993 upon receipt of a 'Notice of motion for judgment of foreclosure and sale.' The plaintiffs allege that six phone calls in the course of one week were made to them by the Aaron defendants. The substance of these calls is alleged by the plaintiffs to be that: 1) the Mathons should not pay Stuart any more rent; 2) when Marine Midland Bank gets title to the premises as a result of the foreclosure action, it would be, in the plaintiffs' words, "more desireous [sic] for the banks to sell the house to the Mathons since the Mathons were living there and maintaining the property at great expense."

 The Mathons allege that at some unspecified time, apparently in the Spring of 1993, the Aaron defendants told the Mathons that "because of the expenses they incurred relating to this house after any forclosure [sic] Action, they should not worry, since they are now 'Junior Lienors."' See Compl. P67.

 One more call from the Aaron defendants is specifically set forth. It apparently occurred in the Spring of 1993, and allegedly, in substance, advised the Mathons not to pay rent to Stuart. No specific calls are set forth in the Amended Complaint after the ones allegedly made in the Spring of 1993, but the plaintiffs claim that they spoke with the Aaron defendants by phone on various occasions until October, 1993, and were assured by the Aaron defendants that the house and any improvements they made to the house would eventually be their own property.

 The plaintiffs allege that the Aaron defendants asked them to write a letter that would be forwarded to Marine Midland by the Aaron defendants. That letter is dated October 1, 1993, and is annexed as Exhibit "C" to the Amended Complaint. The letter seems to set forth the terms of purchase that the Mathons understood would be available or that they desired, as opposed to any terms that Aaron represented would be available. The Aaron defendants are not named in the Amended Complaint in the events that are described as occurring after October 1, 1993.

 II. The Marine Midland defendants - October, 1993 to February, 1994

 In October, 1993, the Mathons began discussions regarding purchase and sale of the property with the Marine Midland defendants directly. The plaintiffs allege that between October, 1993, and February, 1994, they were assured "on an ongoing basis" by Marine Midland that they would "own the house."

 The plaintiffs allege that the Marine Midland defendants phoned the Mathons to advise them that appraisals and inspections were needed and that the plaintiffs cooperated with the bank in that respect. There is no allegation that the Mathons, rather than the bank, paid for these appraisals and inspections.

 III. The Shapiro Defendants - November, 1993 to May, 1994

 The Shapiro defendants, another law firm that represented Marine Midland Bank, entered the picture in November of 1993, when an eviction notice prepared by them was left at the premises. The Mathons called the Shapiro defendants, who allegedly assured them they should not worry about the eviction notice and asked them to write a letter stating that they were interested in purchasing the property. That letter is annexed to the Amended Complaint as Exhibit "E."

 Three letters regarding the purchase and sale agreement were sent to the Mathons by the Shapiro defendants during the period between February, 1994, and May, 1994. These letters constitute the alleged mail fraud. One letter dated February 23, 1994 accompanied a contract for purchase and sale of the premises, which required a 10% down payment. The next letter, which is dated March 18, 1994, states that the contract terms were firm and sets a March 31, 1994, expiration date of the offer to sell. The final letter, dated May 3, 1994, states that the bank is no longer interested in selling the property to the Mathons.

 A letter from the Mathons to the Shapiro defendants dated March 1, 1994, reflects negotiating efforts regarding the terms of the purchase and discusses the following: 1) a lower purchase price if a down payment is required; 2) the possibility of a certificate of occupancy problems or violations that might have to be corrected if another lender was involved; 3) the Mathons' willingness to pay $ 240,000.00 for the house "as is" and release the bank from past and present liabilities if the bank holds the mortgage for 5 years. The Court notes that communications regarding the house all refer to purchase and sale in an "as is" condition.

 The Amended Complaint alleges that the bank's demand of a 10% down payment for the house is a "strong armed tactic" to "fraudulently attempt to steal $ 24,000.00 of the Mathons' down payment as well as other monies invested in the house by the Mathons." See Amended Compl. P96. According to the Amended Complaint, "this was done with great malice and intent in a conspiratorial scheme to defraud the Mathons." Id.

 The plaintiffs relate that they hired legal counsel in March of 1993, with regard to the purchase of the premises and were advised to research the certificate of occupancy for the house. They allege that they discovered at that time that the premises had a certificate of occupancy covering less than half of the actual premises. The Amended Complaint alleges that the defendants knew at all times that the house lacked proper certification for occupancy. However, the Mathons' letters reflect that the agreement with the bank was to purchase the premises "as is." The plaintiffs allege that the lack of certification meant financing problems would arise and that the bank was aware of those problems.

 The plaintiffs state that during the month of March, 1994, an eviction proceeding was commenced in New York State Supreme Court by the Marine Midland defendants, whose legal counsel in that proceeding was the Shapiro defendants. The Mathons state that they were assured by the Shapiro defendants on March 24, 1994, that the eviction proceedings would not effect them, because of their prospective purchase of the premises. This latter statement appears to the Court to be a statement of opinion, not a statement of fact.

 The Mathons name as a defendant Dominick Vinceslio, the process server who came to the premises to serve eviction papers in March, 1994, to the owner of the premises. As to this defendant, the plaintiffs allege certain improprieties with regard to the service of the papers.

 The plaintiffs commenced this civil RICO action on or about May 10, 1994. On or about June 20, 1994 an amended complaint was filed and sent via certified mail to all defendants whose addresses were known. At that time the plaintiffs also sent, via certified mail, a request for waiver of service of summons. The plaintiffs state that on July 25, 1994 they received a written waiver of service from the Shapiro defendants. On July 12, 1994 an answer to the Amended Complaint was filed with the Court by the Aaron defendants. Apparently, the other defendants did not respond to the Amended Complaint.

 On September 29, 1994, the plaintiffs filed a notice of motion for service pursuant to Rule 4, seeking service by the United States Marshals at the cost of the defendants. The plaintiffs claim that they withdrew that motion because the Marine Midland defendants' attorney represented to the Mathons on October 20, 1994 that he would accept service on behalf of the Marine Midland defendants. That attorney thereafter appeared at a hearing before United States Magistrate Judge Michael L. Orenstein on October 27, 1994.

 On or about November 3, 1994, the plaintiffs filed a notice of motion to enter default judgment allegedly because they had not received a waiver of service from the Marine Midland defendants. The Court declined to enter a default judgment based on evidence that the defendants were attempting to move or answer in the action.

 DISCUSSION OF THE PLAINTIFFS' MOTIONS TO ENTER DEFAULTS

 I. As to the Marine Midland Defendants

 Fed. R. Civ. P. 4(d) is a provision by which a plaintiff may seek to have the defendant waive formal summons service. The rule states that defendants have a "duty to avoid unnecessary costs of service summons" and sets forth formal requirements for the notice and request for waiver. As a consequence of failure by a defendant to comply with such a request, "the court shall impose the costs subsequently incurred in effecting service on the defendant unless good cause for the failure be shown." Fed. R. Civ. P. 4(d)(2).

 The effect of this rule is to shift the cost of service to a defendant who does not agree to waive formal service. It is clear from the plain language of the rule as well as the commentary to the rule that absent a waiver from the defendant, service must be effected in a formal manner in order to bring the defendant under the Court's jurisdiction.

 Here, it is alleged that the Marine Midland defendants gave verbal assurance that they would accept service on or about October 20, 1994. On November 4, 1994, the law firm of Cullen & Dykman served a notice of appearance on behalf of Marine Midland Bank, N.A., Duane Leonard, and Marine Midland Mortgage Corp., annexed to which is acknowledgment of service on those defendants as of that date. The plaintiffs' notice of motion for entry of default judgment is dated November 3, 1994. Even if the Marine Midland defendants are deemed to have accepted service on October 20, 1994, the plaintiffs' default motion was filed prior to the expiration of the time in which the Marine Midland defendants could respond to the Amended Complaint.

 The plaintiffs argue that the Marine Midland defendants have been uncooperative and misleading regarding the return of waivers of service so that "entry of default judgment under special circumstances" is appropriate. The Court does not agree that the defendants behavior has been so egregious as to justify entry of default.

 The defendants actual acknowledgement of service is dated November 4, 1994. The Marine Midland defendants served and filed a notice of motion to dismiss the Amended Complaint against them on or about November 3, 1994. The Court finds that the Marine Midland Bank, N.A., Duane Leonard and Marine Midland Mortgage Corp. are not in default. Accordingly, the plaintiffs' motion to enter default judgment against them is denied.

 The Court notes that to date, the named defendant Hongkong and Shanghai Bank Corp., Ltd. has not waived service and has not been formally served in this action. Also, the named defendant Laura Glulseppotti, a former Marine Midland employee, has not been served in this action.

 II. As to the Shapiro defendants

 The plaintiffs first moved for entry of a default judgment against the Shapiro defendants on or about September 30, 1994, three days after their time to answer had expired. The Shapiro defendants first attempted to respond to the Amended Complaint on or about October 11, 1994, by making a motion to dismiss, which was unsuccessful, as explained below. The default period at most spans only a matter of weeks.

 The Shapiro defendants signed waivers of summons service on July 25, 1994. According to Fed. R. Civ. P. 4(d)(3):

 
A defendant that, before being served with process, timely returns a waiver so requested is not required to serve an answer to the complaint until 60 days after the date on which the request for waiver of service was sent....

 Accordingly, the Shapiro defendants' time to answer or otherwise move with respect to the Amended Complaint expired on September 26, 1995. The plaintiffs consented to extend the Shapiro defendants time to answer the Amended Complaint until September 27, 1995. The plaintiffs served and filed a notice of motion for entry of default judgment against the Shapiro defendants on or about September 30, 1994.

 The Court returned the plaintiffs' motion papers under cover letter dated October 5, 1994 because they did not include proof of service. Upon resubmission of the motion papers, the Court thereafter advised the Mathons, by letter dated October 26, 1994, that no default would be entered when it appeared that the defendants were attempting to appear in the action.

 The Shapiro defendants prepared and submitted to the Court, motion papers to dismiss the Amended Complaint. These motion papers were returned to the defendants under cover letter from the Court dated October 19, 1994 explaining that the papers failed to conform to Judge Spatt's individual rules. The papers were resubmitted and again rejected by the Court under cover letter dated October 26, 1994, which explained that the record revealed a default. The ...


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