The opinion of the court was delivered by: ARTHUR SPATT, District Judge
MEMORANDUM OF DECISION AND ORDER
The plaintiffs filed this class action complaint alleging that
the defendants violated the Truth in Lending Act, the Real Estate
Settlement Procedures Act, and the Fair Debt Collection Practices
Act by collecting three types of fees in connection with the
prepayment and satisfaction of mortgages and home equity loans.
The plaintiffs also assert various causes of action under New
York State common law for breach of contract, unjust enrichment,
and fraud, and under section 349 of the New York General Business
Law and section 1921 of the New York Real Property Actions and
Presently before the Court is a motion by Astoria Financial
Corporation, Astoria Federal Savings and Loan Association,
Astoria Federal Mortgage Company, Long Island Bancorp, Inc., and
Long Island Savings Bank, FSB, (collectively, the "Defendants")
to dismiss the Federal claims for failure to state a claim under
Rule 12(b)(6) of the Federal Rules of Civil Procedure and for the
Court to decline to retain supplemental jurisdiction over the
state law claims.
The following facts and allegations set forth below are taken
from the Plaintiffs' amended complaint and will be viewed in the
light most favorable to the plaintiffs, which the Court accepts
only for purposes of this motion.
The plaintiffs David Mcananey, Carolyn Mcananey, Cynthia Russo,
Phillip Russo, Constance Reilly, and John Reilly (collectively,
the "Plaintiffs") were all mortgagors of Long Island Savings
Bank, FSB ("Long Island Savings"). Long Island Savings was a
thrift institution and a wholly-owned savings bank subsidiary of
Long Island Bancorp, Inc., which closed on September 30, 1998,
and merged into the defendant Astoria Federal Savings and Loan
Association ("Astoria Federal"). Astoria Federal provides retail
banking, mortgage, small business, and consumer loan services to
Nassau, Suffolk, Queens, Kings, and Westchester Counties in New
York and is a wholly-owned and controlled subsidiary of Astoria
Financial Corporation ("Astoria Financial").
According to Astoria Financial's Form 10-K, filed with the
Securities and Exchange Commission for the year ending on
December 31, 2002, Astoria Financial states that they "generally
sell [their] fifteen year and thirty year fixed rate loan
production into the secondary mortgage market. . . ." The
secondary mortgage market in the United States consists of buyers
of mortgages such as the Federal Home Loan Mortgage Corporation
("FHLMC"), the Government National Mortgage Association ("GNMA"),
and the Federal National Mortgage Association ("FNMA").
When applying for their mortgages from the Defendants, all of
the Plaintiffs received a standard form mortgage contract. In the
contract, the Defendants state the mortgagor "will not be
required to pay lender for the discharge." The contract states
further that the mortgagor "will pay the cost of recording the
discharge in the proper official records." Attached to the
contract also was a standard Rider form, which states that the
mortgagor will have to pay all reasonable fees relating to the
mortgage including, but not limited to, satisfaction of the
mortgage. At the bottom of the Rider is a bold-faced heading that
reads: "RIDER VOID IF SECURITY INSTRUMENT SOLD TO FNMA, GNMA, OR
The complaint alleges that the Defendants routinely charge
consumers fees and charges not permitted by the mortgage
contracts for loans resold to FNMA, GNMA and FHLMC. The complaint
further alleges that such fees constitute finance charges,
prepayment penalties, refinancing penalties, and payoff fees that
are charged to consumers that pay-off mortgages prior to
The Plaintiffs were all at one time mortgagors of the
Defendants. Some time after the loan origination, the Defendants
sold the Plaintiffs' mortgages to the secondary mortgage market.
Subsequent to the sale, Long Island Savings and Astoria Federal
acted as the servicer of the mortgage, collecting debts for the
mortgage owned by FNMA, FHLMC, or GNMA. When the Plaintiffs
wished to prepay the loan, they received a letter from Astoria
Federal listing the amount necessary to satisfy the mortgage that
also contained certain other charges. Included among those
charges were an "Atty Doc Prep Fee" of $125, a "Facsimile Fee" of
$25 and a "Recording Fee" of $64 (collectively, the "Disputed
Fees"). In the case of the Reilly Plaintiffs, the facsimile fee
was $50. In the case of the Russo Plaintiffs, who also were
obligors of another loan originated by the Defendants that was
secured by the Russo residence, they were charged an additional
"Satisfaction Fee" of $125.00 and a "County Clerk Fee" of $64.50
to pay off the loan. All of the Plaintiffs paid the Disputed Fees
in order to satisfy their mortgage loans.
The Plaintiffs contend that the Disputed Fees each constitute
undisclosed finance charges, prepayment penalties, refinancing
penalties and payoff fees that would not have been imposed on, or
payable by the Plaintiffs had the mortgages or loans been paid
off at maturity rather than at an earlier date. In addition, the
Plaintiffs contend that, although New York law requires that a
mortgage satisfaction be recorded withing 45 days from the last
payment of principle and interest owed on the mortgage, the
McAnaney's mortgage was not filed for more than a year. The
Plaintiffs also contend that no Satisfaction of Mortgage has been
filed for the Russo mortgage.
I. Motion to Dismiss Standard
In ruling on a motion to dismiss, pursuant to Rule 12(b)(6),
the court must accept as true all the factual allegations and
construe the complaint liberally. Scutti Enterprises v. Park
Place Entertainment Corp., 322 F.3d 211, 214 (2d Cir. 2003);
Bolt Elec. v. City of New York, 53 F.3d 465, 469 (2d Cir.
1995). The court also must draw all reasonable inferences in the
plaintiff's favor, but need not accept "mere conclusions of law
or unwarranted deductions." First Nationwide Bank v. Gelt
Funding Corp., 27 F.3d 763, 771 (2d Cir. 1994). "The 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,
40 L.Ed. 2d 90, 94 S. Ct. 1683 (1974)). Dismissal is only appropriate
when "it appears beyond doubt that the plaintiff can prove no set
of facts which would entitle him or her to relief." Sweet v.
Sheahan, 235 F.3d 80, 83 (2d Cir. 2000).
In support of their motion to dismiss, the Defendants have
submitted a number of materials outside the pleadings, including
an affidavit and numerous exhibits. Federal Rule of Civil
Procedure 12(b)(6) provides that
[i]f, on a motion . . . to dismiss for failure of the
pleading to state a claim upon which relief can be
granted, matters outside the pleading are presented
to and not excluded by the court, the motion shall be
treated as one for summary judgment and disposed of
as provided in Rule 56, and all parties shall be
given reasonable opportunity to present all material
made pertinent to such a motion by Rule 56.
Fed.R.Civ.P. 12(b)(6). However, the court has discretion to
"exclude the additional material and decide the motion on the
complaint alone. . . ." Kopec v. Coughlin, 922 F.2d 152
(2d Cir. 1991) (internal quotations omitted); Moses v. Citicorp
Mortg., Inc., 982 F. Supp. 897, 901-02 (E.D.N.Y. 1997). The
Court declines to consider the materials the parties have
submitted outside the pleadings. Further, without the parties
having a full opportunity for discovery in this case, the Court
declines to convert the Defendants' motion to one for summary
In addition, in its review, the Court is mindful that under the
modern rules of pleading, a plaintiff need only provide "a short
and plain statement of the claim showing that the pleader is
entitled to relief," and that "[a]ll pleadings shall be so
construed as to do substantial justice." Fed.R.Civ.P. 8(f).
Recovery may appear remote and unlikely on the face of the
pleading, but that is not the test for dismissal. Gant v.
Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995).
II. The Truth in Lending Act
The Truth-in-Lending Act ("TILA") was enacted to assure
meaningful disclosure of credit terms, avoid the uninformed use
of credit, and to protect the consumer against inaccurate and
unfair credit billing and credit card practices.
15 U.S.C. §§ 1601-65(b) (2004); see also Ford Motor Credit Co. v.
Milhollin, 444 U.S. 555, 559, 100 S. Ct. 790, 63 L. Ed.2d 22
(1980) (stating that TILA's purpose is to assure "meaningful
disclosure of credit terms to consumers"); Stein v. JP Morgan
Chase Bank, 279 F. Supp. 2d 286, 291 (S.D.N.Y. 2003). Failure to
make a required disclosure and satisfy the Act may subject a
lender to statutory and actual damages that are traceable to the
lender's failure. Beach v. Ocwen Federal Bank, 523 U.S. 410,
412, 118 S. Ct. 1408, 1410, 140 L. Ed. 2d 566 (1998).
In enacting TILA, Congress delegated authority to the Federal
Reserve Board of Governors to promulgate implementing regulations
and interpretations known as Regulation Z. 15 U.S.C. § 1604(a).
These regulations, which are located at 12 C.F.R. Part 226 may be
relied upon by creditors for protection from any civil or
criminal liability. See Household Credit Services, Inc. v.
Pfennig, 541 U.S. 232, 124 S. Ct. 1741, 1746 (2004). According
to Regulation Z, the provisions of TILA apply to creditors that
regularly offer or extend credit for personal, family, or
household purposes, and that is payable by agreement in more than
four installments, or subject to a finance charge.
12 C.F.R. § 226.1 (2004). As such, TILA is applicable to loans that are
secured by real property or a dwelling such as residential
mortgage transactions and home equity loans. See id. §
226.3(b). "Any person who originates 2 or more mortgages . . . in
any 12-month period or any person who originates 1 or more such
mortgages through a mortgage broker shall be considered to be a
creditor for purposes of [TILA]." 15 U.S.C. § 1602.
In general, TILA requires creditors to disclose, among other
things, all finance charges and prepayment provisions.
12 C.F.R. § 226.18. The "finance charge" is defined as "the sum of all
charges, payable directly or indirectly by the person to whom the
credit is extended, and imposed directly or indirectly by the
creditor as an incident to the extension of credit."
15 U.S.C. § 1605(a) (emphasis added). Regulation Z further explains that
the finance charge is "the cost of consumer credit as a dollar
amount." 12 C.F.R. § 226.4(a). Examples of finance charges in
residential mortgage transactions include interest, points, loan
fees, appraisal fees, credit report fees, mortgage insurance
premiums, and debt cancellation fees. Id. § 226(b). Regulation
Z expressly exempts from disclosure certain charges, such as
credit application fees charged to all applicants, unanticipated
charges for late payment or default, fees charged for
participation in a credit plan, and the seller's points. Id. §
In addition, the following fees related to residential mortgage
transactions need not be disclosed if they are bona fide and
reasonable: (1) fees for title examination, abstract of title,
title insurance, property survey, and similar purposes; (2) fees
for preparing loan-related documents, such as deeds, mortgages,
and reconveyance or settlement documents; (3) notary and credit
report fees; (4) property appraisal or inspection fees performed
prior to closing; (5) amounts required to be paid into escrow or
trustee accounts if the amounts would not otherwise be included
in the finance charge. Id. Regulation Z also allows a creditor
to exclude taxes and fees "that actually are or will be paid to
public officials for determining the existence of or for
perfecting, releasing, or satisfying a security interest." Id.
The Plaintiffs advance two theories for recovery under TILA.
First, that the Disputed Fees were finance charges that the
Defendants either failed to disclose or improperly excluded
because they were not bona fide or reasonable. Second, that the
Defendants failed to disclose the ...