The opinion of the court was delivered by: Gershon, United States District Judge
In this action arising from a set of fraudulent schemes allegedly perpetrated by defendant Olympia Mortgage Corporation ("Olympia") acting through its principals and employees, defendants Samuel Pinter, Fagie Pinter, 1716 Realty Corporation ("1716 Realty"), Kahal Shomrei Hadath ("KSH"), Shaindy Pinter, Abe Donner, Alan J. Braun & Company ("Braun & Co."), Alan Braun, and Zesha Auerbach move to dismiss the claims asserted against them by plaintiff Federal National Mortgage Association ("Fannie Mae"). In addition, cross-claim defendants Shaindy Pinter, Zesha Auerbach, and Patty Trinidad move to dismiss the crossclaims asserted against them by a court-appointed Receiver acting on behalf of Olympia. For the reasons set forth below, the motions to dismiss are granted in part and denied in part.
Fannie Mae commenced this lawsuit on November 16, 2004. On consent of the parties, the court appointed a Receiver for Olympia on November 23, 2004 and empowered her to take all necessary and appropriate steps to secure and protect Olympia's assets. On July 29, 2005, Fannie Mae filed an Amended Complaint. As relevant to the instant motions, in the Amended Complaint Fannie Mae asserts claims of negligent misrepresentation against Samuel Pinter; aiding and abetting fraud, fraud through conspiracy, and unjust enrichment against Samuel Pinter and Abe Donner; breach of fiduciary duty against Samuel Pinter, Abe Donner, and Fagie Pinter; fraudulent conveyance against Samuel Pinter, Abe Donner, 1716 Realty, KSH, and Shaindy Pinter; and aiding and abetting fraud and negligent misrepresentation against Braun & Co., Alan Braun, and Zesha Auerbach. Fannie Mae also seeks to pierce the corporate veil to hold Samuel Pinter, Abe Donner, Fagie Pinter, and Shaindy Pinter liable for Olympia's alleged wrongdoing. On September 26, 2005, the Receiver, on behalf of Olympia, filed an Answer to the Amended Complaint in which she asserted crossclaims in accordance with Federal Rules of Civil Procedure 13(g) and (h). On October 18, 2005, the Receiver filed an Amended Answer with crossclaims (the "Amended Crossclaims"). As relevant to the instant motions, the Receiver asserts crossclaims of breach of fiduciary duty, director and officer misconduct, fraudulent conveyance, and unjust enrichment against Shaindy Pinter and Patty Trinidad; conversion against Shaindy Pinter; and professional malpractice against Zesha Auerbach. The Receiver also seeks to pierce the corporate veil to hold Shaindy Pinter liable for Olympia's alleged wrongdoing and seeks an accounting of funds allegedly diverted from Olympia.
For purposes of the motions to dismiss plaintiff's claims, all facts alleged in the Amended Complaint are accepted as true and all reasonable inferences are drawn in favor of plaintiff. For purposes of the motions to dismiss Olympia's crossclaims, all facts alleged in the Amended Crossclaims are accepted as true and all reasonable inferences are drawn in favor of Olympia. Except where otherwise noted, the following relevant facts are set forth in both the Amended Complaint and the Amended Crossclaims.
Fannie Mae is a government-sponsored private corporation whose mission includes increasing the availability and affordability of homeownership for low, moderate, and middle income Americans. See 12 U.S.C. §§ 1716-1719. Fannie Mae does not originate mortgage loans; it purchases loans from mortgage lenders in the secondary mortgage market. Olympia, a closely held corporation organized under the laws of New York, acted as a mortgage lender and servicer from 1986 until November 4, 2004, when the company surrendered its license following a suspension by the New York State Department of Banking. According to the Amended Complaint, Defendants Samuel Pinter and Fagie Pinter together own a 49% interest in Olympia. Defendant Abe Donner owns a 32% interest in Olympia. Defendants Barry Goldstein and Miriam Goldstein together own a 9% interest in Olympia. Defendants Lieb Pinter and Shaindy Pinter together own a 9% interest in Olympia.*fn1 At relevant times, Samuel Pinter served as Senior Vice President of Olympia and Chairman of the Board of Directors. Fagie Pinter served as Secretary of Olympia and sat on the Board of Directors. Abe Donner served as President of Olympia and sat on the Board of Directors. Barry Goldstein served as Managing Director of Olympia. Lieb Pinter served as Executive Vice President of Olympia.
According to the Amended Complaint, on June 8, 1988, Fannie Mae and Olympia entered into a Mortgage Selling and Servicing Contract (the "Contract"). Subsequently, the parties executed three addenda to the Contract, dated January 23, 1989, June 19, 1996, and March 7, 1997. Pursuant to the Contract, the parties agreed that Fannie Mae would purchase certain mortgage loans from Olympia and that Olympia would service those loans. On a monthly basis, Olympia was required to collect from borrowers payments comprised of amortized shares of the principal and interest due on the loans and the taxes and insurance charges accruing on the properties that secured the loans. Olympia was required to deposit the portion of the payments representing principal and interest into one set of bank accounts (the "P&I Accounts") and to inform Fannie Mae, via a computer system called "LASER," of the amount of money that was deposited into the P&I Accounts. Olympia was required to deposit the portion of the payments representing taxes and insurance into another set of bank accounts (the "Escrow Accounts"), from which it was supposed to pay the taxes and insurance premiums on the borrowers' properties as they came due. When a borrower paid off a loan in connection with a refinance, Olympia was required to deposit the payoff funds, i.e., the outstanding principal and accrued interest, into the P&I Accounts and to inform Fannie Mae through the LASER system that the loan had been paid off.
The Amended Complaint alleges that, in at least 257 instances, Olympia, acting through its principals and employees,*fn2 accepted payoff funds from borrowers who sought to refinance their loans but did not deposit the funds into the P&I Accounts and did not inform Fannie Mae that the loans had been paid off. Instead, Lieb Pinter and Barry Goldstein caused Olympia to deposit the payoff funds into its operating account and continue to report to Fannie Mae via LASER that the original loans were active. On a monthly basis, Olympia deposited funds from its operating account into the P&I Accounts in amounts equal to the principal and interest that would have been due on the loans had they not been paid off. When Olympia did not have enough money on hand to make the deposits, its principals took short term loans from defendant Midwood Federal Credit Union ("Midwood"), a credit union controlled by Abe Donner. Although the loans were secured by promissory notes signed by Olympia's principals, they were repaid by Olympia. In October 2002, Olympia paid Midwood $300,000 in satisfaction of a loan taken by Samuel Pinter. In December 2002, Olympia paid Midwood $100,000 in satisfaction of a loan taken by Lieb Pinter and $100,000 in satisfaction of a loan taken by Barry Goldstein. Olympia stopped sending the borrowers payment booklets for the original loans and stopped collecting payments for property taxes and insurance premiums so that it would appear to the borrowers that their loans had been refinanced.
The pleadings further allege that Olympia retained defendant Marcus Pinter to provide routine accounting services, including preparation of tax returns and review of the company's books and records prior to its annual audit and retained defendant Alan J. Braun & Company, an accounting firm, to prepare audited financial statements on an annual basis, which Olympia was required to submit to Fannie Mae under the Contract. Defendants Alan Braun and Zesha Auerbach are accountants who were employed by Alan J. Braun & Company at relevant times and prepared the audited financial statements that were submitted to Fannie Mae. Olympia's audited financial statements did not disclose any of Olympia's allegedly deceptive conduct.
According to the Amended Complaint, during the period from 2001 to 2004, Olympia conveyed in excess of $3,500,000 to defendant 1716 Realty, which corporation is organized under the laws of New York and owned by Olympia's principals. Some or all of the funds were subsequently transferred to Samuel Pinter, Barry Goldstein, Abe Donner, and Shaindy Pinter. During the period from 1999 to 2004, Olympia conveyed in excess of $400,000 to Midwood. Some or all of the funds were subsequently transferred to Abe Donner. During the period from 1999 to 2004, Olympia conveyed in excess of $1,760,000 to defendant KSH, a nonprofit corporation organized under the laws of New York that functioned as the alter ego of Samuel Pinter. Some or all of the funds were subsequently transferred to Samuel Pinter. According to the Amended Crossclaims, Olympia transferred $1,316.40 to Shaindy Pinter as wages in 2004, even though Shaindy Pinter did little or no work for Olympia at that time. The Amended Crossclaims also allege that Olympia transferred funds to creditors of both Shaindy Pinter and Patty Trinidad, including mortgage lenders, credit card companies, insurance companies, and others, for the payment of those cross-claim defendants' debts. All of the foregoing transfers are alleged to have been made without fair consideration, at times when Olympia was insolvent, with actual intent to hinder, delay, and/or frustrate Olympia's creditors.
I. Standard for a Motion to Dismiss
In deciding whether a pleading states a claim on a motion pursuant to Federal Rule of Civil Procedure 12(b)(6), the court must accept as true all factual allegations set forth in the pleading and draw all reasonable inferences in favor of the claimant. Phelps v. Kapnolas, 308 F.3d 180, 184 (2d Cir. 2002).
A. Basic Pleading Standard of Rule 8
Federal Rule of Civil Procedure 8 sets forth the basic standard of pleading by which the sufficiency of a claim is evaluated on a motion to dismiss. Rule 8(a)(2) provides that a complaint need include only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Such a statement need do no more than "give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). This simplified notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims. Id. Other provisions of the Federal Rules of Civil Procedure are inextricably linked to Rule 8(a)'s simplified notice pleading standard. For example, Rule 8(e)(1) states that "[n]o technical forms of pleading or motions are required," and Rule 8(f) provides that "[a]ll pleadings shall be so construed as to do substantial justice." Fed. R. Civ. P. 8(e)(1), 8(f); id. at 513-14. Given the Federal Rules' simplified standard for pleading, "[a] court may dismiss a complaint [under Rule 12(b)(6)] only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Swierkiewicz, 534 U.S. at 514 (quoting Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)).
B. Heightened Pleading Standard of Rule 9(b)
Federal Rule of Civil Procedure 9(b) sets forth a heightened pleading standard for allegations of fraud: "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed. R. Civ. P. 9(b). The particularity requirement of Rule 9(b) serves to provide a defendant with fair notice of a plaintiff's claim, to safeguard a defendant's reputation from improvident charges of wrongdoing, and to protect a defendant against the institution of a strike suit. Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004). To comply with Rule 9(b), a complaint must: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent. Lerner v. Fleet Bank, N.A., ___ F.3d ___, ___, 2006 WL 2260822, *13 (2d Cir. 2006). "Malice, intent, knowledge, and other condition of mind of a person may be averred generally" under Rule 9(b). Nevertheless, the relaxation of Rule 9(b)'s specificity requirement regarding condition of mind is not a license to base claims of fraud on speculation and conclusory allegations; accordingly, the pleader must allege facts that give rise to a strong inference of fraudulent intent. Id. The requisite inference may be established by alleging either: (a) facts showing that defendants had both motive and opportunity to commit fraud, or (b) facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness. Id.
II. Motions to Dismiss Claims in the Amended Complaint
A. Claims Against Olympia's Principals
1. Aiding and Abetting Fraud
To establish liability for aiding and abetting fraud under New York law, a plaintiff must show: (1) that a fraud existed; (2) that the defendant had actual knowledge of the fraud; and (3) that the defendant provided substantial assistance to advance the fraud's commission. Lerner, 2006 WL 2260822 at *15. The parties agree that claims of aiding and abetting fraud are subject to the heightened pleading standard of Rule 9(b).
Samuel Pinter and Abe Donner each argue that the claims of aiding and abetting fraud asserted against them by Fannie Mae should be dismissed for failing to satisfy Rule 9(b). Their arguments are meritless. The first element of the claim, existence of the fraud, is pled adequately. The Amended Complaint paints a clear picture of the fraud alleged by Fannie Mae. In at least 257 instances between 1988 and 2004, Olympia accepted payoff funds from borrowers but did not remit those funds to Fannie Mae. Instead, through the actions of Lieb Pinter and Barry Goldstein, it deposited the funds into its own operating account and continued to report the paid off loans as active via the LASER reporting system. The Amended Complaint also details various steps taken by Olympia and its principals to prevent the fraud from being detected. For example, Olympia made monthly deposits via check into the P&I Accounts to make it appear that the borrowers who had paid off their loans were still making monthly payments. Samuel Pinter and Barry Goldstein signed the checks. When Olympia did not have enough money in its operating account to make the monthly deposits, its principals took short term loans from Midwood. In 2002, such loans were taken by Samuel Pinter, Lieb Pinter, and Barry Goldstein. Further, Olympia stopped sending borrowers payment booklets and stopped collecting payments for property taxes and insurance premiums to prevent them from finding out that their loans had not been refinanced. Overall, the allegations of the fraud are more than adequate to satisfy the requirements of Rule 9(b) and to serve its three objectives: They provide defendants with fair notice of Fannie Mae's claim and satisfy the court that the charges of wrongdoing against defendants are not improvident nor part of a strike suit. See Rombach, 355 F.3d at 171; cf. Wight v. Bankamerica Corp., 219 F.3d 79, 91-92 (2d Cir. 2000).
The second element of aiding and abetting fraud, actual knowledge, is likewise pled adequately with respect to both Samuel Pinter and Abe Donner. Although, as Abe Donner points out, the Amended Complaint's allegation that he "knew or was reckless and/or grossly negligent in not knowing" of Olympia's alleged fraud is insufficient in itself to satisfy Rule 9(b), see id.; In re Worldcom Inc. Securities Litigation, 382 F. Supp. 2d 549, 560 (S.D.N.Y. 2005), the Amended Complaint alleges specific facts that give rise to a strong inference of actual knowledge on the part of both defendants. According to the Amended Complaint, the fraud permeated every aspect of Olympia's business during a period when Abe Donner served as Olympia's President and Samuel Pinter served as its Senior Vice President and Chairman of its Board of Directors. Samuel Pinter caused Olympia to make monthly deposits into the P&I Accounts in an effort to prevent Fannie Mae from learning of Olympia's fraud. Abe Donner caused Midwood to lend money to Olympia's principals to help finance the fraudulent scheme. Furthermore, Olympia conveyed proceeds from the fraud on Fannie Mae to Samuel Pinter, Abe Donner, and entities that they controlled.
The allegations that Samuel Pinter caused Olympia to make monthly deposits to the P&I Accounts and that Abe Donner caused Midwood to lend money to Olympia's principals also satisfy the pleading requirements with respect to the third element of the claim, substantial assistance.
In sum, the claims against Samuel Pinter and Abe Donner of aiding and abetting fraud are adequately pled in the Amended Complaint.
2. Fraud through Conspiracy
Samuel Pinter and Abe Donner also argue that the claims of fraud through conspiracy asserted against them should be dismissed for failing to satisfy Rule 9(b). For the reasons discussed above, the alleged fraud and defendants' roles ...