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November 7, 2001


The opinion of the court was delivered by: William C. Conner, Senior District Judge.


Regions Bank d/b/a Regions Funding ("Regions") brought the instant action against defendants Wieder & Mastroianni, P.C. and Peter Mastroianni (collectively "W & M"), alleging, inter alia, wrongful conversion of funds and breach of fiduciary duty.W & M then filed a Third-Party Complaint against The Provident Bank, Inc. d/b/a Provident Consumer Financial Services, Inc. ("Provident"), Morning Star Mortgage Bankers, Inc., and Angela Daidone ("Daidone") (collectively "Morning Star"). Third-party defendant Provident now moves to dismiss W & M's Third-Party Complaint pursuant to FED. R. CIV. P. 12(b)(6) or, in the alternative, to stay or dismiss this action in favor of an earlier filed action in the Northern District of Georgia. For the reasons stated below, Provident's motion is granted in part.


The instant action arises from a series of fraudulent banking transactions initiated by Morning Star through its president and chief executive officer Daidone. Morning Star was in the business of originating residential mortgage loans. In order to obtain funding for these loans, Morning Star arranged lines of credit with financial institutions called "warehouse lenders." (Complt. ¶ 15.) A warehouse lender provides short-term funding for home buyers through approved mortgage brokers. A mortgage broker such as Morning Star obtains loan funds on behalf of its customers from a "warehouse line of credit" established with the warehouse lender. The mortgage note resulting from such transactions is usually sold to other financial institutions soon after close of the sale of property that is subject to the mortgage. Upon sale of the mortgage note to an investor, the warehouse lender is typically repaid the amount owing on the note by the mortgage broker.

Regions, the initial plaintiff in this action, is in the business of providing warehouse loans. (Complt. ¶ 6.) On April 4, 2000, Regions and Morning Star entered into a Warehouse Security Agreement and warehouse line of credit. (Id. ¶ 9.) According to the agreement, Regions would fund mortgage loans originated by Morning Star. The funding of loans specified by Morning Star was effectuated by Regions's wire transferring the requested amount into the escrow account of Morning Star's settlement agent, defendant W & M. (Id. ¶¶ 9-11.) The funds transferred into W & M's escrow account on behalf of Morning Star were to be used to fund previously specified underlying loans. (3d-Party Complt. ¶ 13.)

Between April 10 and April 12, 2000, in three separate transactions, Regions advanced a total of $798,720 to W & M's escrow account for the purpose of funding loans specified by Morning Star. (Complt. ¶¶ 15-25.) In the first transaction on April 10, 2000, Regions transferred a sum of $171,720 to W & M's escrow account for the alleged purpose of funding a loan to Mr. Aguado ("Aguado loan")*fn2. Again, on April 12, 2000, Regions transferred a second sum of $465,000 to W & M's escrow account for the purpose of funding a loan to Mrs. Crawford ("Crawford loan"). Finally, on April 13, Regions transferred a sum of $162,000 to W & M's escrow account for the purpose of funding a loan to Mr. Graziosi ("Graziosi loan"). W & M received instructions as to the loans and the amounts wired into the escrow account from Morning Star. (3d-Party Complt. ¶¶ 14-17.)

On April 10, 2000, Daidone notified W & M by fax that the Aguado loan was not going to close and that the money for that loan was sent in error. Daidone instructed W & M to return the funds to Provident, falsely stating that Provident was the warehouse lender and originator of the loan. Daidone provided wiring and account numbers. (Id. ¶¶ 18, 21.) Pursuant to this instruction and allegedly in ignorance, W & M transferred the funds to Morning Star's private account at Provident on April 11, 2000.*fn3 (Id. ¶ 20; Complt. ¶ 31.) On April 12, 2000, Daidone contacted W & M, advising that there was an error with respect to the Crawford and Graziosi loans, and again instructing W & M to wire the funds to Provident. (3d-Party Complt. ¶ 21.) W & M complied with this request. As a result of these transactions, W & M transferred the $798,720 that Regions advanced on behalf of Morning Star to Morning Star's account at Provident.

Soon after the transfer of the above funds to Provident, Regions contacted W & M and allegedly informed W & M for the first time that the funds originated from Regions and not from Provident. (Id. ¶ 22.) In response, W & M instructed Provident to wire the funds back to the escrow account so that they could be returned to Regions. Provident refused. (Id. ¶ 24.)

The FBI began investigating Morning Star's activities sometime prior to April 4, 2000.*fn4 The investigation revealed that Morning Star defrauded Provident of approximately $1,800,000 either by pledging no collateral to obtain loans, or by pledging collateral which it had already pledged to secure funds from another warehouse lender. (Id. ¶ 28.) The FBI investigation also revealed that Morning Star had secured funds for loans by submitting fraudulent documents. (Id. ¶ 29.) Provident allegedly learned of potentially fraudulent activity by Morning Star sometime around April 4, 2000, and shortly thereafter demanded repayment of the $1,800,000 outstanding on Morning Star's line of credit (Id. ¶¶ 30, 31.) The FBI's investigation of Morning Star also revealed that the company had fraudulently obtained funds from Regions.*fn5 (Id. ¶ 32.)

On or about April 13, 2000, Daidone instructed Provident to remove the funds in her private account and apply them as a set-off to the $1,800,000 warehouse line of credit held by Morning Star. (3d-Party Complt. ¶ 25.) Although allegedly aware of potential fraud by Morning Star, Provident withdrew the funds and applied them as a set-off to Morning Star's line of credit. (Id. ¶ 26.)

On June 30, 2000, Regions filed a complaint in the United States District Court for the Northern District of Georgia, Atlanta Division (docket number 1 00-CV1646) ("Georgia action"), against Provident and Morning Star alleging, inter alia, unjust enrichment, conversion and receipt of stolen property by Provident, and breach of contract, breach of legal duty, conversion and fraud by Morning Star. That action is ongoing. On January 8, 2001, Regions filed this action in the Southern District of New York against W & M.*fn6 W & M then filed a Third-Party Complaint against Provident and Morning Star, seeking contribution for any judgment Regions recovered against W & M.


I. Dismissal or Stay in Favor of a First-Filed Action

The Supreme Court has recognized that "the power to stay proceedings is incidental to the power in every court to control the disposition of the causes on its docket." Landis v. North American Co., 299 U.S. 248, 254, 57 S.Ct. 163, 81 L.Ed. 153 (1936). In order to promote judicial economy, if competing cases are filed in two federal courts, "the general principle is to avoid duplicative litigation." Colorado ...

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