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