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PROVIDENT BANK v. KABAS

April 23, 2001

THE PROVIDENT BANK, AN OHIO BANKING CORPORATION D/B/A/ PCFS FINANCIAL SERVICES, A DIVISION OF THE PROVIDENT BANK, PLAINTIFF,
v.
JAN BERNARDS KABAS, ESQ., A/K/A JAN B. KABAS, ESQ., MORTGAGE PLUS EQUITY & LOAN CORP., MPEL HOLDINGS CORP., STEVEN M. LATESSA, CARY WOLEN AND RITA GUARDINO, DEFENDANTS.



The opinion of the court was delivered by: Wexler, District Judge.

MEMORANDUM AND ORDER

Presently before the court is the motion of the Mortgage Company Defendants to stay this action pending arbitration. In the alternative, the Mortgage Company Defendants seek dismissal of several of the causes of action. Defendant Kabas moves to dismiss the causes of action asserted against him, or in the alternative; to stay the action against him pending arbitration.

For the reasons set forth below, the court grants the motion of the Mortgage Company Defendants to stay this action pending arbitration. The court similarly grants the motion of Defendant Kabas to stay the action as against him pending the outcome of the arbitration. No opinion is expressed regarding any motion to dismiss at this time. The court orders that this case be administratively closed, subject to reopening upon notification that the arbitration has been completed.

BACKGROUND

I. The Parties and Their Business Relationship

Plaintiff Provident Bank is an Ohio banking corporation with its principal place of business in Cincinnati, Ohio. Provident entered into a business relationship with Mortgage Plus Equity and Loan Corporation ("Mortgage Plus"), a New York corporation located in Syosset, New York. Pursuant to the parties' agreement, the Bank agreed to lend funds, from time to time, to Mortgage Plus to permit the latter company to finance mortgages that it originated. The Bank's funding of the loans is referred to as short term financing, provided with the expectation that once the funds were obtained, Mortgage Plus would arrange for third party investors to provide permanent financing. Also named by the Bank as defendants are MPEL Holdings Corp., the parent company to Mortgage Plus as well as Steven M. Latessa, Cary Wolden and Rita Guardino, three officers of Mortgage Plus.

In addition to having a business relationship with Mortgage Plus, the Bank had a relationship with defendant Kabas. Kabas, an attorney located in Melville, New York, was to act as the Bank's closing agent in connection with loans originated by Mortgage Plus. Pursuant to that relationship, Kabas was charged with closing loans financed by the Bank, disbursement of loan funds and delivery and recording of closing documents. Loan funds were to be held in trust by Kabas in his attorney trust account pending all loan closings.

II. The Warehouse Loan Agreement and the Closing Agreement

The rights and obligations of the parties hereto are contained in two contracts. The Warehouse Loan Agreement (entered into between the Bank and Mortgage Plus) and the Closing Agreement (entered into between the Bank and Kabas).

The Warehouse Loan Agreement states that it is entered into in the State of Ohio. Pursuant to this agreement, Mortgage Plus, as borrower, is granted the right to request the Bank, as lender, to fund loans evidenced by promissory notes and secured by mortgages, deeds of trust, or deeds to secure debt conveying interests in real estate.

Of particular relevance here is the arbitration clause of the Warehouse Loan Agreement. That clause states that all disputes "arising out of" the agreement are to be settled by arbitration in accordance with the rules of the American Arbitration Association. The arbitration clause further provides that the arbitration is to be before a single arbitrator and is to be held in the State of Ohio. Finally, the arbitration clause prohibits the arbitrator from making an award of punitive or exemplary damages to either party.

Kabas' duties as closing agent for the Bank are set forth in a document known as a "Closing Agent Agreement." That agreement. entered into in March of 1999, sets forth the duties of the closing agent as stated above. The rights and obligations of the parties to the Closing Agent Agreement are stated therein to be governed by the laws of the State of Ohio, where the closing agent expressly agrees to jurisdiction and venue.

III. The Complaint

As noted above, the complaint contains several causes of action. The factual predicates for each cause of action are set forth in detail in the complaint. Specifically, the complaint recites the circumstances surrounding twenty-two loan transactions involving Mortgage Plus as originator and Kabas as the closing agent.*fn1

In the majority of the cases referred to in the complaint it is alleged that the mortgage funded by the Bank was improperly assigned to more than one third-party investor such that the Mortgage Company Defendants received double payment for the mortgage and at least one third party investor may not have a legal security interest in the mortgage. With respect to other mortgages, it is alleged that an mortgage was applied for but county records do not show that Mortgage Plus ever possessed or recorded the mortgage.

Common to all factual predicates for the several causes of action is the allegation of misconduct in connection with loans obtained by Mortgage Plus from the Bank pursuant to the Warehouse Loan Agreement. Such misconduct is alleged to support causes of action in: (1) breach of fiduciary duties owed by all parties to the Bank under the Warehouse Loan Agreement and the Closing Agent Agreement; (2) recission: (3) accounting and constructive trust; (4) breach of the Warehouse Loan Agreement; (5) breach of the closing agent agreement; (6) breach of the fiduciary duty of Kabas as the attorney for the Bank; (7) common law fraud; (8) negligence or wilful misconduct: (9) RICO; ...


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