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GREEN v. KADILAC MORTG. BANKERS

July 31, 1996

LAWRENCE E. GREEN and BARBARA L. GREEN, Plaintiffs, against KADILAC MORTGAGE BANKERS, LTD., f/k/a KADILAC FUNDING, LTD., MORDECHAY MOVTADY, JACK ECONOMOU, PEGGY HATLE, PHILIP PAGLIARO, COLUMBIA EQUITIES, LTD. and "JOHN DOES # 1 TO # 25," Defendants.


The opinion of the court was delivered by: CONNER

 CONNER, Senior D.J.:

 Plaintiffs Lawrence E. Green and Barbara L. Green, acting pro se, have alleged that defendants violated 42 U.S.C. § 1983 by conspiring to deprive them of their property without due process of law. Defendants Kadilac Mortgage Bankers, Ltd. f/k/a/ Kadilac Funding, Ltd. ("Kadilac"), Mordechay Movtady and Jack Economou have moved, pursuant to Fed. R. Civ. P. 56(c), for summary judgment dismissing the complaint. Defendants Peggy Hatle, Philip Pagliaro, and Columbia Equities, Ltd. ("Columbia") have made a motion to dismiss the complaint under Fed. R. Civ. P. 12(b)(6). Each of the defendants has requested sanctions against plaintiffs, and defendant Economou has applied for a permanent injunction barring plaintiffs from filing any further claims against him arising from the alleged events. Plaintiffs have moved for default judgment against Kadilac and Movtady and have made a motion under Fed. R. Civ. P. 15 for leave to file amended and supplemental pleadings asserting claims against additional defendants. Plaintiffs also seek sanctions against each of the defendants.

 For the reasons set forth below, defendants' motions under Rule 56(c) and Rule 12(b)(6) are granted, and plaintiffs' motions are denied. The motions for sanctions filed by defendants Kadilac, Movtady, Hatle, Pagliaro and Columbia are granted, while defendant Economou's request for sanctions and application for a permanent injunction are denied.

 BACKGROUND

 The following facts are drawn from the complaint in this case, affidavits submitted by several of the parties and the records of a number of prior lawsuits related to this action. The parties are essentially in agreement on the factual circumstances of this case, although they disagree sharply on the legal significance of those facts.

 On June 27, 1985, the Greens purchased the premises at 18A Bundy Hill Road in Pawling, New York, for $ 60,000 and executed a purchase money mortgage for $ 48,000. Kadilac was the mortgagee. As a condition for entering into the mortgage agreement, Kadilac required the Greens to place $ 4,000 in escrow to ensure that the driveway, which encroached on the adjoining property, would be relocated. On that same day, Kadilac assigned the mortgage to the Federal Home Loan Mortgage Corporation ("FHLMC") and became the servicing agent for the mortgage. The assignment was recorded on August 1, 1985.

 From August 1985 to May 1987, the Greens made mortgage payments to Kadilac. The Greens assert that during this period, they tried unsuccessfully to get Kadilac to use the funds in escrow to correct the driveway encroachment. The Greens ceased to make payments to Kadilac as of June 1, 1987, when they discovered that the FHLMC, rather than Kadilac, held their mortgage. They contend that in the absence of notice from the FHLMC of the assignment of the mortgage, they had no obligation to make payments.

 On July 15, 1987, the Greens filed an action in this court (the "first federal action") captioned Green v. Kessler, No. 87 Civ. 5024. The Greens alleged that the defendants, who included Kadilac and its president Movtady, had conspired to defraud the Greens by, inter alia, failing to correct the driveway encroachment. On February 23, 1989, that action was dismissed with prejudice for lack of subject matter jurisdiction. The Second Circuit affirmed on September 5, 1989, and denied rehearing on January 18, 1990.

 Meanwhile, on October 12, 1987, the FHLMC instituted foreclosure proceedings (the "foreclosure action") in New York State Supreme Court, Dutchess County. A notice of pendency was filed on November 2, 1987. No further action was taken in that case for some time while the parties attempted to work out their differences. The notice of pendency apparently expired on November 2, 1990. *fn1" On or about March 22, 1991, the FHLMC filed a second foreclosure action in the same court. A notice of pendency was filed on April 2, 1991. On March 24, 1992, the court dismissed the second foreclosure action on the ground that an identical action was already pending. On June 10, 1992, Justice Hillery granted summary judgment in the foreclosure action in favor of the FHLMC. She subsequently granted reargument and on August 4, 1992, issued a decision adhering to the original result. The Greens filed a notice of appeal from that decision.

 Also on August 4, 1992, Justice Hillery entered an order appointing defendant Jack Economou as referee for the purpose of determining the amount of money that the Greens owed to the FHLMC. Economou completed his report on August 18, 1992. On October 16, 1992, the Appellate Division denied the Greens' application for a stay of the foreclosure proceedings pending appeal. On April 7, 1993, Justice Hillery approved Economou's report, entered a judgment of foreclosure and sale and appointed Economou as referee to conduct the sale. The sale was scheduled for July 7, 1993.

 On June 16, 1993, the Greens filed an action in this court (the "second federal action") captioned Green v. Federal Home Loan Mortgage Corp., No. 93 Civ. 4113. In that case, the Greens alleged that they had never received notice of the assignment of their mortgage to the FHLMC, that the FHLMC had failed to obtain correction of the driveway encroachment or to return to the Greens the funds held in escrow for that purpose, that the FHLMC had notice that the mortgage had been obtained by fraud but nevertheless failed to take any corrective action and that the FHLMC had improperly pursued foreclosure actions against the Greens. The Greens asserted that the FHLMC had violated their civil rights to the enjoyment of their property.

 The Greens filed an application in the second federal action for a preliminary injunction to halt the foreclosure sale. Plaintiff argued that the judgment of foreclosure was invalid because: (1) the state court lacked jurisdiction over the foreclosure action brought by the FHLMC because such suits could only be brought in federal district court, (2) the FHLMC could not be represented by a private attorney in the foreclosure action and (3) the FHLMC did not have capacity to sue in New York state. On July 2, 1993, Judge Goettel denied the Greens' application. He concluded that the Greens' contentions that the state court lacked jurisdiction over the foreclosure action were meritless and that they were collaterally estopped from relitigating issues that had been decided in the foreclosure action. He also stated that plaintiffs' denial of due process claims were meritless because plaintiffs had been afforded ample process in the state court. Judge Goettel stayed proceedings in the second federal action pending the outcome of the Greens' state court appeal.

 On July 7, 1993, the property was sold to Kadilac for $ 90,000, leaving a deficiency of $ 14,778.15. On that same day, Economou executed a deed to convey the property to Kadilac. Kadilac, represented by Economou, subsequently brought suit against plaintiffs in the Town Court of Pawling seeking a warrant of eviction. On October 19, 1993, the Town Justice granted summary judgment to Kadilac. On November 10, 1993, the Greens obtained a stay of eviction from Justice Beisner of the New York Supreme Court, Dutchess County.

 The Greens also made a motion before Justice Hillery to vacate the judgment of foreclosure and sale. The Greens argued that the judgment of foreclosure and sale was invalid for the following reasons: (1) the judgment of foreclosure and sale was entered on April 7, 1993, although the foreclosure action in which it was entered was terminated as a matter of law on November 2, 1990, upon expiration of the notice of pendency filed on November 2, 1987; (2) the attorney handling the foreclosure action was not actually representing the FHLMC but was instead the attorney for Kadilac, which was not a party to the foreclosure action; (3) the FHLMC could not be represented by a private attorney in the foreclosure action; (4) the Greens received no notice of the assignment of the mortgage to the FHLMC and therefore had no obligation to make payments after the mortgage was assigned; (5) the true identity of the entity holding their mortgage was concealed from them, impairing their ability to defend the foreclosure action; (6) they were given no notice of their default, of the commencement of a foreclosure action or of the sale of the property; (6) defendant Economou, the referee, did not file his report within the deadline established by law, mishandled his duties and should have allowed the $ 4,000 being held in escrow as a setoff against the amount that the Greens owed on the mortgage; and (7) there were issues of fact concerning fraud, collusion, conspiracy and misconduct, as evidenced by the sale of the property to Kadilac and by Economou's role as both referee and Kadilac's attorney.

 On December 1, 1993, Justice Hillery denied the Greens' motion and vacated the stay of eviction. She also imposed sanctions on the Greens in the amount of $ 300 for engaging in frivolous behavior designed to delay the proceedings and to harass the FHLMC. On December 23, 1993, on the basis of Justice Hillery's decision, the Town Justice of Pawling denied the Greens' motion to vacate the warrant of eviction.

 On January 28, 1994, Justice Hillery denied the Greens' motion for reargument of their motion to vacate the judgment of foreclosure and sale. The Greens appealed that decision. On May 31, 1994, the Appellate Division dismissed the Greens' appeal from Justice Hillery's decision dated August 4, 1992, and on May 8, 1995, the Appellate Division dismissed the Greens' appeal from her decision dated January 28, 1994.

 The FHLMC subsequently filed a motion to dismiss the second federal action, which had been stayed pending the outcome of the state court appeals. As those appeals had been resolved adversely to the Greens, Judge Goettel dismissed the second federal action on June 21, 1995.

 On July 13, 1995, the Greens filed this action. The amended complaint, filed on November 9, 1995, asserts claims under 42 U.S.C. § 1983 against Kadilac, Movtady, and Economou. It also asserts claims under 42 U.S.C. § 1983 against Peggy Hatle and Philip Pagliaro, who purchased the property from Kadilac on July 14, 1994, and against Columbia, which entered into a purchase money mortgage with Hatle and Pagliaro on that date. The FHLMC is not a defendant in this action. Plaintiffs allege that defendants conspired to deprive them of their property, without due process of law, by instituting the foreclosure proceedings against them and by effecting the sale of the property to Kadilac and then ...


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