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American Home Mortgage Corp. v. UM Securities Corp.

April 10, 2007

AMERICAN HOME MORTGAGE CORP., PLAINTIFF,
v.
UM SECURITIES CORP., D/B/A DUPONT FUNDING CO., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Richard Conway Casey, United States District Judge*fn1

OPINION & ORDER

Plaintiff American Home Mortgage Corp. ("Plaintiff" or "American Home"), a mortgage lender for residential real estate, brings the present action alleging civil violations of the federal Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1662(c) and (d), and various state causes of action, including breach of contract, fraud, and negligent misrepresentation. Defendants are mortgage broker UM Securities Corporation d/b/a Dupont Funding Co. ("Dupont Funding"), Dupont Funding's manager Marc S. Eidelkind, Dupont Funding's president Walter M. Eidelkind, and law firm / settlement agent Richard M. Levy & Associates ("Levy & Associates") (collectively, "Defendants"). Presently before the court are Defendants' motions to dismiss pursuant to Rules 12(b)(6), 12(b)(1), and 9(b) of the Federal Rules of Civil Procedure. For the following reasons, Defendants' Rule 12(b)(6) motions to dismiss are GRANTED.

I. BACKGROUND

A. Facts

The following facts are alleged in the amended complaint (the "Complaint").

Plaintiff is a corporation that funds mortgage loans, including those brokered by third parties. On November 12, 2003, Plaintiff and Dupont Funding entered into an agreement entitled Mortgage Broker Loan Application Package Submission Agreement. Between January 2004 and July 2004, pursuant to this submission agreement, Dupont Funding submitted loan application packages for at least nine different real properties (the "Subject Properties"). Plaintiff approved the application packages for the Subject Properties and provided mortgage loans accordingly. Dupont Funding selected Levy & Associates to assist with closing the loans.

Plaintiff alleges that Defendants were engaged in a conspiracy to defraud Plaintiff by fraudulently obtaining loans for the Subject Properties. To perpetrate this fraud, according to the complaint, Defendants engaged in the following: misrepresenting the market values of the Subject Properties; submitting fraudulent documentation-including contracts, property appraisals, and disclosure statements containing forged signatures-to American Home; using as borrowers "straw buyers" who did not actually intend to occupy the properties; misrepresenting the amount of cash brought by the borrowers to closing; providing HUD-1 settlement statements that did not reflect the actual receipt and disbursement of funds for each relevant transaction. Plaintiff alleges that as a result of Defendants' conduct, it "has suffered and will continue to suffer actual and consequential damages in that, among other things, the Subject Loans' values have been substantially diminished." (Compl. ¶ 16.) Plaintiff states that based on the paperwork submitted by Defendants in connection with the loan applications, Plaintiff believed that the properties' market value exceeded the loan amount, and that it "would not have otherwise allowed these loans to fund." (Id. ¶ 135.)

The Complaint identifies nine Subject Properties, and of these, it includes descriptions of five Subject Properties.*fn2 For each of these properties, American Home ordered a review appraisal 6 to 11 months after the original appraisal submitted by Defendants. According to Plaintiffs, the review appraisals revealed inaccuracies and value overstatements in the original appraisals.

Plaintiff alleges that it has foreclosed on only one of the Subject Properties, the property located at 1455 Bushwick Avenue, Brooklyn, New York ("1455 Bushwick"). A public foreclosure sale of 1455 Bushwick was held in the Supreme Court, Kings County, New York on September 22, 2005. The original January 31, 2004 appraisal submitted by Defendants valued this property at $574,500. (Id. ¶¶ 44, 46.) Plaintiffs allege that the original appraisal "materially overstated the value of 1455 Bushwick." (Id. ¶ 49.) Plaintiffs do not allege the amount by which the original appraisal allegedly overstated the value. (Id.) Nor does the Complaint state the amount of the loan provided by Plaintiff for 1455 Bushwick.

In connection with the instant suit, Plaintiff filed its initial complaint on February 18, 2005 and its amended complaint on October 25, 2005. By letters dated October 21 and 31, 2005, Defendants requested that their previously filed motions to dismiss the first complaint be applied to the amended complaint and pleadings. The Court granted that request on November 3, 2005.

The amended complaint alleges seven causes of action, including two under RICO and five under state law. Of the two RICO counts, one count alleges a substantive RICO violation, under 18 U.S.C. §§ 1962(c) and 1964(c), and one count alleges RICO conspiracy, under 18 U.S.C. §§ 1962(d) and 1964(c). Defendants have moved to dismiss all counts.

II. DISCUSSION

A. Standard of Review

Defendants argue for dismissal of Plaintiff's RICO claims on the ground that Plaintiff lacks standing to ...


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