The opinion of the court was delivered by: DENIS HURLEY, District Judge.
Plaintiffs have made a renewed motion to amend the complaint.
For the reasons discussed infra, the Court denies the motion as
futile. As more fully discussed herein, the Court concludes that
claims against certain of the defendants cannot be rehabilitated.
However, revised pleading may cure some of the defects identified
as to other defendants. As a result, leave to
renew this motion shall be subject to the restrictions of this
Order. In the Discussion portion of this Order, the Court
addresses each of the parties' proffered arguments. The purpose
of this discussion is to provide guidance to the parties as to
what issues should be addressed in any renewed motion to amend
A. Procedural Background.
Plaintiffs commenced this action on July 10, 2001, by filing
the original complaint. The original, twelve-count, putative
class action complaint alleged violations of
42 U.S.C. § 1981, 1982, 1985(3), 1986, 3604(a), 3604(b), 3604(d) and
3605, as well as state law violations of § 296 of the New
York Executive Law, § 349 of the New York General Business
Law, Title 8 of the Administrative Code of the City of New York,
and common law breaches of contract, express warranty, and
implied warranty of habitability and workmanlike construction. On
November 20, 2001, Defendant First West Mortgage Bankers Ltd.
served its answer upon Plaintiffs.
On January 10, 2002, Plaintiffs submitted a proposed first
amended complaint ("First Amended Complaint"). Plaintiffs
originally contended that this First Amended Complaint effected
an amendment as of right, see Fed.R.Civ.P. 15(a). However, since
an answer had been served and filed, Plaintiffs, at the Court's
direction, resubmitted this First Amended Complaint as part of a
motion for leave to amend the complaint. See id.
Plaintiffs' First Amended Complaint spanned 573 pages and
contained 4555 numbered paragraphs. The First Amended Complaint
contemplated the joinder of approximately 400 individual named
plaintiffs and the addition of 55 new defendants. (Four of the
defendants named in the original complaint were also to be
dropped from the suit.) The 72 total Defendants in the First
Amended Complaint were classified as (1) Seller Defendants, (2)
Lender Defendants, (3) Builder Defendants, (4) Appraiser
Defendants, (5) Abstract Company Defendants, (6) Lawyer
Defendants and (7) Current Lender Defendants. The Lenders were
Mortgage banks that made residential real estate loans to the
purchasers of homes sold by the Seller Defendants.*fn1 As defined by
that First Amended Complaint, the Current Lenders are
Corporations providing residential loans in the New York
metropolitan area who acquired and hold loans made by the Lender
Defendants to purchasers of homes sold by the Seller Defendants.*fn2
The Current Lenders were solely named as defendants in one cause
of action, alleging that they had been unjustly enriched.
On September 6, 2002, the Court issued a written order denying
leave to amend the complaint. In that Order, the Court noted
various joinder problems endemic to the First Amended Complaint.
Plaintiffs filed a timely motion for reconsideration and
reargument. On January 6, 2003, the Court heard oral argument
from counsel regarding Plaintiffs' motion for reconsideration and
reargument. At the conclusion of the oral argument, the Court
granted reconsideration but ultimately decided to abide by the
conclusions of the September 6, 2002, Order.
At that January 6, 2002, oral argument, Plaintiffs expressed a
desire to submit a proposed Second Amended Complaint. The Court
granted leave to submit that Second Amended Complaint in the form
of a renewed motion for leave to amend the complaint.
B. Allegations of the Second Amended Complaint.
The Second Amended Complaint names thirty-two Plaintiffs. These
Plaintiffs are named individually as well as in their capacity as
representatives of a putative class. All of the Plaintiffs are
identified as either "black" or "hispanic" and reside in the New
The Second Amended Complaint also names Isaac Toussie, Robert
Toussie and their various real estate businesses,*fn3
referred to as
the Seller Defendants ("Sellers"); PMCC Mortgage Corp. ("PMCC")
and Smith-Haven Mortgage Corp. ("Smith-Haven"), referred to as
the Lender Defendants ("Lenders"); and thirty-four current
holders of mortgage notes,*fn4
referred to as the Current Lender
Defendants ("Current Lenders"). With regard to the Sellers,
Plaintiffs allege the following:
In residential subdivisions that they create and
build, the Sellers have implemented a policy by which
they covertly steer minority buyers to purchase
defective homes in predominantly minority
neighborhoods and away from predominantly white
neighborhoods. Furthermore, Sellers lure these
inexperienced and low income inner city minority
buyers into purchasing homes that they cannot afford
and that: (i) are intentionally overpriced and
over-appraised. . .; (ii) have mortgage and/or
property tax payments that are dramatically higher
than represented and expected. . .; (iii) are
defectively built; (iv) lack the amenities promised
by Sellers; and (v) are located in different towns
and in worse neighborhoods than represented by
Second Amended Complaint ¶ 78. The Second Amended Complaint
also alleges that the Sellers prepared false loan applications
and other documents for submission to the United States
Housing and Urban Development ("HUD"). Id. ¶¶ 99, 100.
Plaintiffs intermittently refer to the overall scheme described
above as a "conspiracy." See, e.g., id. ¶ 107.
The Second Amended Complaint also alleges that: "The
Seller[s] . . . arrange class members' mortgages with the
Lender[s]. . . . The Sellers refer class members to
Lender[s]. . ., which are cooperating financial agencies
and that the Sellers are affiliated with by common control,
contract or business relationship." Id. ¶ 108.
With regard to the Lenders, Plaintiffs allege that they
"knowingly participate[d] in this criminal conspiracy in
order to, among other things, generate income through
points and fees." Id. Plaintiffs also allege that
the Lenders "submit[ted] class members' loan applications to
HUD," "[d]espite knowing of the false contents of the
With respect to certain of the Current Lenders, the Second
Amended Complaint alleges:
The Lender[s] . . . serve[d] as agents and mortgage
brokers on behalf of other, principal banks which
hold the mortgage[s] after closing, including Current
Lenders Fleet [Mortgage Corp.], Chase [Manhattan
Mortgage Corp.], Citimortgage, Firstar [Corp.],
Countrywide [Lending], Norwest [Mortgage], PHH
Mortgage, ABN AMRO [Bank], Waterfield Mortgage
Company and American Brokers Conduit. Prior to
closing, the Lender[s] . . . have already arranged to
sell the note and mortgage to these Current Lenders.
In fact, [P]laintiffs [we]re told at closing to make
their first monthly [mortgage] payments to these
Id. ¶ 109.
With regard to all Current Lenders, the Second Amended
Complaint alleges that "[t]he Current Lender[s] . . . each
acquired and hold one or more of the class members' loans, having
acquired the loan either at closing or in the secondary market."
Id. ¶ 130.
The notes held by the Current Lender[s] . . . are
grossly over-inflated due to the practices described
above. Consequently, the debt owed by class members
to Current Lender[s] . . . is much greater than if
class members' homes had been accurately appraised,
providing the Current Lenders with an unfair
benefit. . . . In addition, . . . class members are
also forced to pay interest at a higher rate than
if the homes had been accurately appraised. . . .
[and a]s the current holders of the notes, the
Current Lender[s] . . . benefit[ed] from these
excess interest payments.
Id. ¶ 131-132. The Second Amended Complaint also alleges that
the Current Lenders refused to voluntarily restructure or
refinance Plaintiffs' loans. See id. ¶ 134-138.
As more fully set out in the Second Amended Complaint,
Plaintiffs allege the following causes of action against only the
Sellers: (1) Claim I violation of the Federal Fair
Housing Act, 42 U.S.C. § 3601, et seq.; (2) Claim II
violation of the Civil Rights Act of 1866, 42 U.S.C. § 1981;
(3) Claim III violation of 42 U.S.C. § 1982; (4)
Claim VIII violation of the New York Human Rights Law,
N.Y. Exec. Law § 296; (5) Claim IX violation of New
York General Business Law § 349; (6) Claim X
violation of Title 8 of the Administrative Code of the City of
New York; (7) Claim XI breach of contract; (8) Claim XII
breach of express warranty and (9) Claim XIII
breach of implied warranty of habitability. Against both the
Sellers and the Lenders, Plaintiffs allege: (1) Claim IV
violation of 42 U.S.C. § 1985(3) and 42 U.S.C. § 1986;
(2) Claim V violation of the Equal Credit Opportunity Act
("ECOA"), 15 U.S.C. § 1691; (3)
Claim VI violation of the Racketeer Influenced and
Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) and
(4) Claim VII RICO conspiracy, under
18 U.S.C. § 1962(d). With regard to the Current Lenders, Plaintiffs
only allege, in Claim XIV, unjust enrichment.
Based upon those causes of action, Plaintiffs pray for
declaratory judgment, a permanent injunction barring any
continuation of the allegedly discriminatory conduct,
compensatory damages, punitive damages, treble damages, costs, a
temporary injunction barring the Current Lenders from foreclosing
on properties purchased by class members, declaratory judgment
that class members' mortgages are null and void and, finally,
that the Court "enter a permanent injunction providing for
equitable reformation of the class members' mortgages, and
directing that the Current Lender[s] . . . take all affirmative
steps necessary to refinance [P]laintiffs' mortgages based on
their income and the accurate market value of their homes," id.
at p. 44.
Rule 15(a) provides that leave to amend a pleading "shall be
freely given when justice so requires." Fed.R.Civ.P. 15(a).
However, " `[w]here it appears that granting leave to amend is
unlikely to be productive, . . . it is not an abuse of discretion
to deny leave to amend.'" Liuceute v. International Business
Machines Corp., 310 F.3d 243, 258 (2d Cir. 2002) (quoting Ruffolo
v. Oppenheimer & Co., 987 F.2d 129, 131 (2d Cir. 1993) (per
curiam)). "One appropriate basis for" evaluating the
"productivity" of a proposed amendment lies in the relative
futility of accepting the proposed amended complaint. Id. One
proper standard for the evaluating futility is whether the
complaint can satisfy the pleading requirements of Fed.R.Civ.P.
9(b), if applicable. See In re Boesky Securities Litigation,
882 F. Supp. 1371, 1384 (S.D.N.Y. 1995). The Court may also evaluate
futility by determining whether the proposed amended complaint
"would withstand a motion to dismiss pursuant to [Fed.R.Civ.P.]
12(b)(6)." Dougherty v. North Hempstead Bd. of Zoning Appeals,
282 F.3d 83, 88 (2d Cir. 2002). Under the Rule 12(b)(6) standard
of futility, as applied by the Second Circuit, the Court should
grant leave to amend the complaint "`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.'" Ricciuti v. N.Y.C.
Transit Authority, 941 F.2d 119, 123 (2d Cir. 1991) (quoting
Coley v. Gibson, 355 U.S. 41, 4546, 78 S.Ct. 99, 2 L.Ed.2d 80
(1957)). The Court applies both futility standards herein.
The parties do not provide briefing on whether the claims
against the Sellers are futile in any manner. Therefore, the
Court does not reach the issue of whether the claims asserted
against the Sellers would withstand a Rule ...