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January 6, 2003


The opinion of the court was delivered by: Sidney H. Stein, United States District Judge


Plaintiffs bring this action against Astoria Federal Savings and Loan Association claiming that a $2,479 charge assessed in connection with the assignment of their home mortgage violated the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"). Plaintiffs also assert state law claims of common law equity, breach of contract, unjust enrichment, fraud, and deceptive and unfair practices in violation of New York General Business Law § 349.*fn1 Astoria Federal now moves pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss all claims except for plaintiffs' breach of contract and unjust enrichment claims. Because, as set forth below, the $2,479 charge was neither part of the finance charge of the mortgage as defined by TILA and its implementing Regulation Z nor is it a prepayment penalty, that charge did not have to be disclosed prior to entering into the loan agreement, and defendant's motion is accordingly granted.


Plaintiffs Matthew J. Pechinski and Brooke Ritvo Pechinski own an apartment at 62 West 62nd Street in Manhattan. (Compl. ¶ 16.) On March 27, 1997, plaintiffs obtained a $297,600 loan from The Greater New York Savings Bank ("Greater New York") in order to purchase the apartment. (Id.) The "Fixed/Adjustable Rate Note" (the "Note") signed in connection with the mortgage stated that the borrower "may make a full prepayment or partial prepayments without paying any prepayment charge." (Compl. ¶ 18 and Ex. A.) The Pechinskis also received a federal Truth-in-Lending Disclosure Statement that stated that there was no prepayment penalty. (Compl. ¶ 18.) However, the mortgage stated that Greater New York could charge plaintiffs a "reasonable fee" as a condition of its agreeing to assign the mortgage to another lending institution. (Compl. 20.) In the fall of 1997, subsequent to plaintiffs' obtaining the mortgage, Greater New York was acquired by Astoria Financial Corp., at which point the Astoria Federal Savings and Loan Association became the holder of plaintiffs' note and mortgage. (Compl. ¶ 31.)

Four and one half years after obtaining their mortgage, plaintiffs notified Astoria Federal that they intended to refinance the mortgage, using U.S. Trust Corporation as the new, refinancing mortgagee, and that they therefore planned to prepay their Astoria Federal loan in full and simultaneously assign it to a new lender as a means of avoiding a New York state mortgage recording tax. (Compl. ¶¶ 28, 32.) As part of the refinancing transaction, plaintiffs requested that Astoria Federal assign the mortgage to U.S. Trust. (Compl. ¶ 32.) Astoria Federal responded to plaintiffs' request for an assignment by indicating that it would assign the mortgage only if the Pechinskis paid (1) an assignment fee of 1% of the outstanding balance of the mortgage, amounting to $2,834.11 and (2) a $200 appearance fee for an Astoria Federal representative to attend the closing, receive its check for the prepayment of the loan, and deliver the assignment to U.S. Trust. (Compl. ¶ 33.)

Plaintiffs ultimately paid Astoria Federal the outstanding balance on the existing loan, the $200 appearance fee and, under protest, an assignment fee of .875% of the outstanding balance of the mortgage, amounting to $2,479. (Compl. ¶ 34.)

Shortly thereafter, plaintiffs commenced this action alleging that the assignment fee violated TILA because (1) it was part of the finance charge on the loan and should have been disclosed to plaintiffs and included in the calculation of the finance charge and (2) it was a prepayment penalty that defendant was required to disclose to plaintiffs prior to their entering the loan agreement. Plaintiffs do not contest the $200 appearance fee.


1. Rule 12(b)(6) Standard

In reviewing a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), a court must accept as true the factual allegations in the complaint. See Weinstein v. Albright, 261 F.3d 127, 131 (2d Cir. 2001); Bolt Elec., Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir. 1995). A motion to dismiss should not be granted unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Walker v. City of New York, 974 F.2d 293, 298 (2d Cir. 1992) (quoting Ricciuti v. New York City Transit Auth., 41 F.2d 119, 123 (2d Cir. 1991). The review is limited, and "[t]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). The court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985).

Although a court is limited to the facts stated in the complaint, for purposes of a Rule 12(b)(6) motion, "the complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." Int'l Audiotext v. Network, Inc. v. AT&T Co., 62 F.3d 69, 72 (2d Cir. 1995) (per curiam) (quoting Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991). Even when a document is not attached as an exhibit, the court may consider such a document where the complaint "relies heavily upon its terms and effect," rendering the document "integral" to the complaint. Id.

2. The TILA Claims

The purpose of TILA and its accompanying regulations is to "assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit." 15 U.S.C. § 1601. See also Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559 (1980) (TILA's purpose is to assure meaningful disclosure of credit terms to consumers.).

The Courts of Appeals have consistently ruled that TILA should be liberally construed in favor of the consumer in order to effectuate Congress' intent of promoting the informed use of credit. For example, the U.S. ...

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