The opinion of the court was delivered by: CURTIN
Plaintiff, William Katz, brought this action seeking an injunction to prevent defendants The Dime Savings Bank of New York, FSB ("Dime") and Federal National Mortgage Association ("FNMA") from foreclosing on a mortgage on which plaintiff has defaulted and for damages for breach of an alleged agreement to "work out" plaintiff's default, as well as for violations of the Servicer Act, 12 U.S.C. § 2605.
With respect to his damages claims, plaintiff is seeking (1) "actual" and statutory damages for defendants' violations of the Servicer Act, and (2) "actual" and punitive damages, in the sum of $ 1,000,000, for defendants' breach of the alleged workout agreement (Item 1, pp. 8-9). Currently pending is defendants' motion for partial summary judgment (Item 81). Defendants request that this court dismiss plaintiff's claims for punitive damages, for damages for personal injury and economic loss, and for statutory damages in excess of $ 1,000 (Item 82, p. 3). The parties appeared for oral argument on the motion on November 19, 1997.
On or about March 25, 1997, Dime loaned $ 135,200.00 to plaintiff, the repayment of which was secured by a mortgage on plaintiff's home (Item 82, p. 2; Item 83, PP 1-2). The mortgage was duly recorded in the Office of the Clerk of the County of Erie on March 25, 1997 (Item 83, P 3). Defendants contend that in July 1987, Dime sold plaintiff's note and mortgage to FNMA, and thereafter repurchased the note and mortgage in August 1991 (Id., P 4). Although plaintiff acknowledges that at some time after the loan and mortgage were entered into, Dime sold the mortgage to FNMA (Item 1, P 9), plaintiff disputes that FNMA transferred the mortgage back to Dime in August 1991 (Item 90, P 1). Plaintiff therefore asserts that FNMA is the owner, by right of assignment, and that Dime is the servicer, as agent of FNMA, of the mortgage (Item 1, PP 9 and 11).
Defendants contend that in January 1991, plaintiff defaulted on his obligations under the loan by failing to pay amounts due in principal, interest, and escrow (Item 82, p. 2; Item 83, P 5). Defendants further assert that after plaintiff's default, Dime unsuccessfully attempted on several occasions to contact plaintiff by phone in an effort to secure payments from him (Item 82, p. 2). Defendants contend that by letter dated July 1, 1991, Dime notified plaintiff that it was exercising its option to call the mortgage and demand payment of the entire balance and interest due by reason of plaintiff's failure to make payments for the months of January 1991 through July 1991 (Item 83, P 6). Defendants claim that under paragraph 31 of the mortgage agreement, the holder was entitled to require plaintiff to pay immediately the entire amount remaining unpaid under the note and mortgage if plaintiff failed to keep any promise or agreement therein, including promises to pay when due the amounts owed to the lender (Id., P 8). Defendants contend that at the time Dime accelerated plaintiff's note, there was due and owing a principle balance of $ 131,757.70, plus interest of over $ 60,000, late charges, and amounts advanced by Dime in excess of $ 27,000 to pay taxes, hazard insurance, premiums on insurance policies, taxes, and water rates (Id., PP 9 and 11).
Plaintiff disputes nearly all of defendants' claims regarding plaintiff's default on the loan and mortgage, Dime's efforts to secure payments, Dime's right to accelerate the note and mortgage, Dime's efforts to notify plaintiff that it was exercising such a right, the amount due at the time Dime accelerated the note and mortgage, and Dime's tax and insurance payments for the mortgaged property (Item 90). Nevertheless, attached to his affirmation submitted in opposition to defendants' motion for partial summary judgment (Item 92), plaintiff has supplied copies of his correspondence to and from Dime during the period at issue. These documents show that (1) in January 1991 plaintiff had defaulted on his loan payments (Id., Exhibits 16-20, 23), (2) Dime made repeated attempts to secure payment (Id., Exhibits 19 and 23), and (3) Dime notified plaintiff in July 1991 that it was exercising its option to call the mortgage (Id., Exhibit 46).
Although plaintiff disputes that he breached his obligations under the loan and mortgage (Item 90, P 2), he claims that in the spring of 1991 he entered into negotiations with Dime with regard to certain payments due under the mortgage which had become past due as a result of his ill health (Item 1, P 10). Plaintiff contends that as a result of these negotiations, Dime, as servicer of the mortgage, offered to accept eight payments, each in the sum of $ 2,982.57, in place of the regular monthly payments due under the terms of the mortgage (Id., P 11). Allegedly, these payments were to cure the past due amount owing and to bring the mortgage current (Id.). To prove the existence of this workout agreement, plaintiff has provided the court with (1) a letter, dated April 5, 1991, which plaintiff allegedly sent to Ms. E. Collins at Dime that was intended to memorialize an alleged prior conversation during which the agreement was reached (Item 92, Exhibit 31), and (2) a letter, dated April 2, 1991, from Dime setting forth a new repayment schedule of five monthly payments of $ 2,982.00 designed "to bring [plaintiff's] account current" (Id., Exhibit 35).
Plaintiff alleges that on April 5, 1991, he accepted Dime's offer and made, in consideration of the mutual promises, the first of the eight payments required under the agreement (Item 1, P 12). Plaintiff contends that Dime accepted and deposited plaintiff's cashier's check in the agreed sum of $ 2,982.57 and sometime thereafter sent plaintiff a statement of account with regard to the mortgage (Id., PP 13-14).
Plaintiff asserts that upon receipt of this statement, plaintiff sent Dime a "qualified written request" inquiring as to the application of the $ 2,982.57 and requesting information relating to the servicing of the loan ( Id., P 15; Item 92, Exhibit 38).
Plaintiff alleges that on or about May 6, 1991, June 3, 1991, and July 12, 1991, he delivered to Dime, as servicer and agent of FNMA, additional cashier's checks, each in the amount of $ 2,982.57, as payments under the alleged workout agreement (Item 1, PP 16, 19, 22; Item 92, Exhibits 39-41, 43-45, 47-49). Plaintiff claims that Dime refused to credit plaintiff's account with each of these payments, in violation of the terms of the alleged workout agreement, and subsequently returned each check to plaintiff (Item 1, PP 17, 20, 23). Plaintiff further claims that upon receipt of each returned payment, he sent Dime a "qualified written request" inquiring as to the application of the funds that had been paid to Dime, as servicer and agent of FNMA, and requesting information relating to the servicing of the loan (Id., PP 18, 21, 24; Item 92, Exhibit 42). Plaintiff submits that Dime failed to investigate and report back in response to his qualified written requests, as required by 12 U.S.C. § 2605, and that Dime violated the consumer protection provisions of section 2605 by making credit reports that indicate overdue payments in dispute (Item 1, PP 25-26).
Defendants have denied the existence of any workout agreement with plaintiff, as well as the technical violations of section 2605 (Item 82, p. 3). They have not supplied any additional documentation of communications between Dime and plaintiff during the relevant period, nor have they explained why they continue to deny the existence of a revised repayment schedule in the face of plaintiff's supporting documentation. Defendants contend that the question of what damages are recoverable by plaintiff is not dependent on any of these facts but, rather, solely presents an issue of law for this court to determine (Item 95).
In October 1991, several days after plaintiff had commenced the present action against defendants, Dime commenced an action against plaintiff in New York State Supreme Court for the foreclosure and sale of the mortgaged premises (Id., p. 2). Defendants submit that paragraph 31 of the mortgage agreement provided Dime with the right to bring a lawsuit to take away all of plaintiff's remaining rights in the subject property and to have the property sold pursuant to a foreclosure and sale proceeding (Id., Item 83, P 8). Dime's state Supreme Court action was dismissed without prejudice, and Dime has asserted a counterclaim in the present action for foreclosure (Item 82, p. 3; Item 24, PP14-32). Although this court would not have jurisdiction over defendants' foreclosure counterclaim if defendants had originally brought that claim before this court, the claim is a compulsory counterclaim pursuant to Fed. R. Civ. P. 13(a) because the claim arises out of the transaction or occurrence that is the subject matter of the opposing party's claim, and therefore this court has jurisdiction over it.
Plaintiff has remained in possession of the mortgaged premises throughout the pendency of this lawsuit.
Plaintiff seeks punitive damages in the sum of $ 1,000,000.00 against Dime on plaintiff's breach of contract claim (Item 1, p. 9). Both sides acknowledge that the general rule under New York law is that punitive damages are not recoverable for ordinary breach of contract claims. See Maier-Schule GMC, Inc. v. General Motors Corp., Inc., 850 F. Supp. 1095, 1104 (W.D.N.Y. 1994), aff'd, 62 F.3d 1412 (2d Cir. 1995). Defendants contend that punitive damages are only permitted where the breach of contract also involves fraudulent conduct which is aimed at the public generally and evinces a high degree of moral turpitude (Item 82, p. 5). See Rocanova v. Equitable Life Assur. Soc., 83 N.Y.2d 603, 612 N.Y.S.2d 339, 342, 634 N.E.2d 940 (1994); Walker v. Sheldon, 10 N.Y.2d 401, 223 N.Y.S.2d 488, 490-91, 179 N.E.2d 497 (1961). Plaintiff argues that punitive damages are appropriate in cases where the actions of the breaching party merely "involve that degree of bad faith evincing a disingenuous or dishonest failure to carry out a contract." (Item 91, p. 4). Plaintiff relies on Aero Garage Corp., v. Hirschfeld, 185 A.D.2d 775, 586 N.Y.S.2d 611 (A.D. 1 Dept. 1992), which held that the plaintiff was entitled to punitive damages due to the defendant's "fully knowing and intentional breach of unambiguous contractual provisions, the flouting of court ordered injunctions and the bad faith institution of administrative proceedings." 586 N.Y.S.2d at 613. Plaintiff contends that Dime's behavior meets this standard.
Although plaintiff is correct in noting that the court in Aero Garage Corp. appeared to nullify the "public wrong" requirement, the New York State Court of Appeals' subsequent specific endorsement of the "public wrong" requirement in Rocanova sheds doubt on the continued ...