("A promise or order otherwise unconditional is not made conditional by the fact that the instrument. . . . states that it is secured, whether by mortgage, reservation of title or other wise. . . ."). In all other respects, the proffered mortgage notes meet the requirements of a negotiable instrument. They were signed, contain an unconditional promise to pay a sum certain in money, and contain no other promise, order, obligation or power. See N.Y. U.C.C. § 3-104(1).
The submission contains the notes for six of the thirty-two Plaintiffs in the Second Amended Complaint. The Second Amended Complaint alleges that the Lenders, in drafting these mortgage notes, "followed the underwriting requirements set forth by these Current Lenders, had open lines of credit from these Current Lenders and were not required to submit the loan applications for pre-approval to these Current lenders." Second Amended Complaint ¶ 109. This language suggests typicality and commonality amongst all of the mortgage notes. It is also notable that, after Chase Manhattan Mortgage Corp. submitted these representative mortgage notes, Plaintiffs' have not come forward to argue that these notes are not typical or representative of all of the notes at issue.*fn7 Therefore, based upon the submissions of the parties, the Court has no reason to doubt that these proffered negotiable instruments are representative of all of the mortgage notes.
Continuing through the analysis of holder in due course status, the Court considers whether the Current Lenders took the instruments for value, Plaintiffs allege that the "notes held by the Current Lender[s] . . . are grossly over-inflated due to the practices described above." Id. ¶ 131. According to the Second Amended Complaint, the loans were inflated at the time they were formed and then purchased for value, either at closing or on the secondary market. Id. ¶¶ 114-116, 124-127, 130. There is no allegation that the mortgage notes themselves were acquired for less than their fair market value, based upon the value of the underlying promise to pay. Therefore, the Court concludes that, based upon the allegations of the Second Amended Complaint, the notes were purchased for value.
With regard to good faith, the question, under New York Law is not whether the Current Lenders "[sh]ould have known, or would have inquired concerning the alleged" malfeasance by the Sellers and Lenders, "but rather, the inquiry is what [the Current Lenders] . . . actually knew." Chemical Bank of Rochester v. Haskell, 51 N.Y.2d 85. 92, 432 N.Y.S.2d 478, 411 N.E.2d 1339 (1980). "If [the Current Lenders] did not have actual knowledge of some fact which would prevent a commercially honest individual from taking up the instruments, then its good faith was sufficiently shown." In the Second Amended Complaint, there is no allegation that the Current Lenders had actual knowledge of any facts that would violate the above quoted standard.*fn8
Finally, the Court must consider whether the Current lenders possessed notice that the mortgage notes were overdue, dishonored, or subject to any defense against or claim. Plaintiffs allege that, with regard to those Current Lenders that arranged for assignment of mortgage notes prior to or at the closing on Plaintiffs' homes, a "fair inference" may be drawn that they had knowledge of the fraud and malfeasance attributed to the Sellers and Lenders. See Plaintiffs' Reply Brief 8-9. To support this proposition, Plaintiffs rely upon Associates Home Equity Serv., Inc. v. Troup, 343 N.J. Super. 254, 270, 778 A.2d 529 (2001). Assuming arguendo that Troup presents a valid statement of the law, the case does not aid the Court's analysis.
"Notice" under the holder in due course provision, N.Y. U.C.C. § 3-302(1), means "actual knowledge." Chemical Bank, 51 N.Y.2d at 92, 432 N.Y.S.2d 478, 411 N.E.2d 1339; see also Indyk v. Habib Bank Ltd., 694 F.2d 54, 57 (2d Cir. 1982) ("Under New York law notice of defenses means actual, subjective knowledge of defenses."). Plaintiffs have failed to plead actual knowledge in the Second Amended Complaint. Not once, in the memoranda regarding the instant motion, do Plaintiffs argue that they can allege actual knowledge. Instead, Plaintiffs rely upon the argument that the alleged circumstances can create an inference "that . . . some of the Current Lenders participated in imposing the terms of at least some of the over-inflated loans." Plaintiffs' Reply Memorandum at 9. However, even giving this argument full persuasive credit, it still fails to articulate any allegation that the Current Lenders had actual knowledge of any claims or fraud. Cf. D.H. Cattle Holdings Co. v. Kuntz, 165 A.D.2d 568, 568 N.Y.S.2d 229, 230-231 (3d Dep't 1991) ("[I]t is clear that a holder is under no duty to investigate the status of a contract underlying a note even when there exists suspicious circumstances which might induce a prudent banker to do so.").
2. Necessary Parties Under Fed R. Civ. P. 19(a).
Plaintiffs also argue that "the Current Lenders must be joined because, without their presence, complete relief cannot be afforded among those already parties." Plaintiffs' Reply Memorandum at 10. In support of this argument Plaintiffs rely heavily upon State of New York v. Harris Home Design, No. 88 CIV. 4086, 1989 WL 88690 (S.D.N.Y. Aug. 2, 1989) (Kram, J.). Id. The Court declined to adopt this rationale in its January 6, 2003, decision. In the context of the instant motion, Plaintiffs have advanced no persuasive reasons to alter this decision. As such, the Court incorporates that decision into this Order. However, for the purpose of clarity, the Court will synopsize its rationale here.
The Court declines to embrace Plaintiffs' argument that Rule 19(a) allows the joinder of a claim against a defendant whether or not it can state a valid claim. As ably stated in Defendant Fleet Mortgage Corporation's Memorandum: "There is simply nothing in Rule 19 itself — a joinder rule — to suggest that it can serve as a basis for relief against a party as to which no substantive claim has been asserted." Fleet Mortgage Corporation's Memorandum at 8. Moreover, to the extent that Judge Kram's decision in Harris Home suggests otherwise, the Court declines to adopt that decision's rationale.*fn9 In short, the Court concludes that Plaintiffs cannot, via Rule 19(a), join the Current Lenders where there is no underlying claim.
For the foregoing reasons, Plaintiffs' motion for leave to amend the complaint is DENIED. With regard to the Lenders, this dismissal is without prejudice to file a renewed motion for leave to amend the complaint. See Luce v. Edelstein, 802 F.2d 49, 56 (2nd Cir. 1986) ("Complaints dismissed under Rule 9(b) [for insufficient particularity] are `almost always' dismissed with leave to amend.") (quoting 2A J. Moore & J. Lucas, Moore's Federal Practice, ¶ 9.03 at 9-34 (2nd ed. 1986)). The requirement for a pre-motion conference is WAIVED for the renewed motion for leave to amend the complaint. Any such renewed motion shall (1) be served and filed within thirty days of this Order (2) include a copy of the proposed Third Amended Complaint and (3) include a memorandum, not to exceed twenty pages, discussing how the concerns detailed in this order have been addressed.
Plaintiffs may not renew their motion with respect to the Current Lenders. As discussed in Section II.B. supra, Plaintiffs have not provided the Court with any indication that they could ever articulate a valid claim against the Current Lenders. As such, any further motions for leave to amend as to the Current Lenders would be futile. See Ruffolo v. Oppenheimer & Co., 987 F.2d 129, 131 (2d Cir. 1993) (district court is within its discretion to deny leave to amend where amendments would not serve any purpose); Health-Clem Corp. v. Baker, 915 F.2d 805, 810 (2d Cir. 1990) ("where . . . there is no merit in the proposed amendments, leave to amend should be denied").