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Sheldon v. Khanal

September 30, 2009


The opinion of the court was delivered by: Kiyo A. Matsumoto United States District Judge Eastern District of New York


MATSUMOTO, United States District Judge

Plaintiffs Dave Sheldon and Darren Kearns bring suit against defendants Tara Khanal ("Khanal"); David Melo and the law firm of David J. Melo, Esq. (the "Melo defendants"); Shams Uddin, and Network Mortgage, Inc. (the "Uddin defendants"); Rosemarie Klie and the law firm of Sweeney, Gallo, Reich & Bolz, LLP (the "Klie defendants"); New York Community Bank, James Cantanno, and the law firm of Forchelli, Curto, Schwartz, Mineo, Carlino and Cohn, LLP (the "NYCB defendants"); Option One Mortgage Corp. ("Option One"); and Julie Wong and Winzone Realty, Inc. (the "Wong defendants").*fn1 Under New York State law, plaintiffs allege that the various defendants committed breach of contract (Count I); bad faith (Count II); breach of fiduciary duty (Count III); negligent and intentional abuse of process (Counts IV and V); negligent and intentional slander of title (Counts VI and VII); common law negligence (Count VIII); negligent misrepresentation (Count IX); fraud by misrepresentation (Count X); fraud by silence (Count XI); common law conspiracy (Count XII); and tortious interference with business relationships and economic prospects (Counts XIII and XIV).

Pending before the court are the following motions.

1) The Melo defendants' motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(1), 12(b)(6), and, in the alternative, 56(c).

2) The Uddin defendants' motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). 3) Option One's motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). 4) The Wong defendants' motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b). 5) The Klie defendants' motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6). 6) The NYCB defendants' motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6).*fn2

For the following reasons, plaintiffs' claims against all defendants are dimissed.


I. Procedural History

Plaintiff filed the pending action in the District of Kansas on March 14, 2007. In April 2007, defendants filed motions to dismiss under Fed. R. Civ. P. 12(b)(1)-(3), and (5)-(6). Judge Kathryn H. Vratil dismissed all claims against the Melo defendants and the Uddin defendants for lack of subject matter jurisdiction. She ordered plaintiffs to show good cause why the court should not dismiss for lack of subject matter jurisdiction plaintiffs' claims against Khanal and the Klie defendants. Additionally, Judge Vratil dismissed for lack of personal jurisdiction claims against the NYCB defendants. The court dismissed claims against Option One for improper venue. Judge Vratil further ordered that plaintiffs show good cause why the claims against the Wong defendants should not be dismissed for lack of subject matter jurisdiction. (J. Vratil Mem & Order Doc. No. 78 ("Doc. No. 78").) As clearly stated in Judge Vratil's November 29, 2007 Memorandum and Order, the defendants who remained in the case at that time were Khanal, the Klie defendants, and the Wong defendants. (Doc. No. 78 at 40.)

Plaintiffs filed their response to the court's orders to show cause on December 12, 2007. Included in plaintiffs' response was a motion for reconsideration and a motion for leave to amend their complaint. (Doc. No. 81.) Judge Vratil denied plaintiffs' motion for reconsideration. The NYCB defendants and Option One, dismissed pursuant to the November 29, 2007 Order, filed memoranda in opposition to plaintiffs' motion for leave to amend. The Melo defendants and the Uddin defendants did not file any opposition. The court granted the plaintiffs leave to amend the compliant to cure the defects the court identified in its November 29, 2007 Memorandum and Order and denied for mootness the Khanal defendants' motion to dismiss filed in April 2007. An amended complaint was filed on February 27, 2008 that includes all of the originally-named defendants.

After the amended complaint was filed, the parties again filed motions to dismiss. Before the motions to dismiss were decided, the case was transferred to this district on September 30, 2008. At an October 10, 2008 settlement conference before Judge Bloom, the court set a briefing schedule for the defendants' motions to dismiss. On December 15, 2008, the Melo defendants, Uddin defendants, and Wong defendants filed motions to dismiss. (Doc. Nos. 201, 204, 205.) The Klie defendants filed their motion to dismiss on February 19, 2009. (Doc. No. 221.) The NYCB defendants and defendant Option One filed their motions to dismiss on February 20, 2009. (Doc. Nos. 231, 237.)*fn3

Upon the request of defendant Option One, the court held oral argument on defendant Option One's motion to dismiss on September 9, 2009.

II. Allegations in the Complaint

In her Memorandum and Order and Order to Show Cause, Judge Vratil summarized the allegations in the first complaint. Although the court notes that the allegations in the first and amended complaints are substantially the same, the court summarizes the amended complaint as follows. Because, as Judge Vratil observed, the plaintiffs' complaint is rambling, poorly-organized and often incomplete, for purposes of clarity, the court's summary of the amended complaint is supplemented with additional evidence in the record as noted. The court, however, does not rely on any evidence or facts outside of the complaint, or documents referred to therein, for purposes other than clarity in summarizing the background of this case.

This case involves two discrete disputes concerning the property located at 148-18 Laburnum Avenue, Flushing, New York (the "property"). The first dispute arises from plaintiffs' purchase of the property in February 2006 and involves the NYCB defendants. The second dispute involves the remaining defendants.

A. Plaintiffs' Allegations against the NYCB Defendants

On February 15, 2006, plaintiffs purchased the property at a sheriff's sale. As set forth in Judge Vratil's Memorandum and Order and Order to Show Cause, NYCB was a mortgagee of the property. (Doc. No. 78 at 5 n.3.) The sheriff subsequently distributed the proceeds of the sale to creditors who had interests in the property, including NYCB. (Id. at 6.) On February 16, 2006, Cantanno, through his law firm Forchelli, Curto, Schwartz, Mineo, Carlino, and Cohn, LLP, contacted plaintiff Sheldon and informed him that he needed to pay additional amounts in interest and fees in addition to the principal balance. (Compl. ¶ 49.) The complaint indicates that for several months the NYCB defendants and Sheldon disputed whether Sheldon owed additional money to NYCB. Ultimately, on October 1, 2006, NYCB, through Cantanno and his law firm, filed suit against the plaintiffs and the original creditor in New York state court requesting a second judicial sale of the property to recover mortgage interest and fees which it had not received from the first judicial sale in February 2006. (Compl. ¶ 52.)

On March 14, 2007, plaintiffs filed the present action against the NYCB defendants alleging causes of action arising from the state court action filed by the NYCB defendants in October 2006. Namely, plaintiffs allege that the NYCB defendants negligently and intentionally abused the legal process by filing the New York suit and negligently and intentionally slandered the title to the property. (Doc. No. 78 at 6.) In a September 23, 2008 Judgment and Order by Judge Marguerite Grays of the New York State Supreme Court, judgment in favor of the NYCB was granted. Judge Grays ordered that the "Satisfaction of Mortgage," filed against the property on July 20, 2006, be vacated and NYCB was granted leave to foreclose on its mortgage lien. (Urschal Aff. Ex. O.)

B. Plaintiffs' Allegations against the Remaining Defendants

Plaintiffs Dave Sheldon and Darren Kearns were the owners of real property located at 148-18 Laburnum Avenue, Flushing, NY. (Compl. ¶ 21.) On August 18, 2006, plaintiffs entered into a listing agreement with the Wong defendants for the sale of the property. (Id.) On approximately August 30, 2006, plaintiffs terminated the listing agreement. (Id.) On approximately September 3, 2006, defendant Wong presented defendant Khanal to plaintiffs as a potential buyer for the property. (Id.) Khanal signed a preliminary offer to purchase the property for $675,000. (Doc. No. 78 at 16. ) Plaintiffs accepted Khanal's offer (Compl. at 23.) Wong advised plaintiffs that the buyer was pre-qualified for the purchase and that the closing would transpire within 30-45 days. (Compl. at ¶ 22.) Wong did not mention to plaintiffs that Khanal had any credit problems, or that she was married. (Id.) Plaintiffs allege that Wong advised plaintiffs on several occasions between September 3, 2006 and November 8, 2006 that Khanal had a loan commitment from Network Mortgage, Inc. (Id. at ¶ 23.)

Between September 4 and 14, 2006, plaintiffs and Khanal, through her attorney, the Melo defendants, negotiated a sale contract of sale. (Compl. at ¶ 26; Doc. No. 201, Ex. 1, Melo Def. 56.1 Stmt. ¶ 1). On September 13, 2006, Khanal obtained a loan commitment from the Uddin defendants and "wrote her down payment check". (Compl. ¶ 24.) The contract was executed by the plaintiffs in Kansas on September 14, 2006. (Compl. ¶ 26.) The contract contained a "Mortgage Commitment Contingency" clause which provided that Khanal's obligation to purchase the property was contingent on her ability to secure a commitment for $525,000 from an institutional lender within 30 days. (Doc. No. 224, Ex. 1, Contract ¶ 8)

On September 14, 2006, the Wong defendants and Khanal placed a "SOLD" sign in the property's yard. (Compl. ¶ 24.) On September 15, 2006, plaintiffs told Khanal and the Wong defendants to take the "SOLD" sign off of the property's yard because they "wanted to be cautious." (Id. at ¶ 24.) Wong and Khanal told plaintiffs that Khanal had a loan commitment, but that she was working on getting a loan with a better interest rate and that there was no need for back-up showings. (Id.) On September 22, 2006, Melo and Khanal ordered a title policy for the property. (Compl. ¶ 28.) On October 4, 2006, Melo and Khanal advised plaintiffs that the parties' contract had been sent to a second lender. (Compl. ¶ 29.) Plaintiffs understood this to mean that Khanal was seeking a better interest rate than the previous commitment. (Compl. ¶ 29.) On October 10, 2006, the Wong defendants advised plaintiffs that Khanal had a loan commitment and that Khanal was planning to close on October 20, 2006. (Id. at ¶ 31.)

On October 18, 2006, Melo told plaintiff Kearns that Khanal did not have a loan commitment and plaintiffs granted an extension of the closing date. (Id. at ¶ 33.) On November 2, 2006, Melo advised plaintiffs that Network Mortgage, Inc., and its broker Shams Uddin, wanted Khanal to buy the property in her cousin's name and transfer the deed back to her after closing. (Compl. ¶ 34.) On November 7, 2006, Uddin, through Network Mortgage, Inc., advised plaintiffs that Khanal's husband had three accounts in collection, that Khanal had a loan commitment, that Khanal refused to accept a co-signer to obtain a second loan commitment at a lower interest rate, and that Sheldon could co-sign a second mortgage at a lower rate with no problem. (Compl. ¶ 38.) Because of Khanal's husband's poor credit, Khanal needed five percent of the purchase price in a second mortgage or a co-signor. (Compl. ¶ 39.) Sheldon agreed to co-sign the loan, but Khanal refused. (Compl. ¶ 39.) On November 7, 2006, Melo told plaintiffs that he was canceling the real estate contract with Khanal because she could not qualify for a loan. (Id. at ¶ 36.) After Melo so informed the plaintiffs, the plaintiffs requested liquidated damages and advised the escrow agents that they objected to the release of any escrow funds to Khanal. (Compl. ¶ 40.)

On November 7, 2006, Khanal asked Option One "to verify her inability to obtain a loan." (Id. at ¶ 34.) Plaintiffs allege that Option One provided Khanal with a denial. (Id. at ¶ 9.)

On February 1, 2007, Khanal filed suit in New York State court seeking return of the $50,000 escrow deposit. (Id. at ¶ 46.) The court ordered plaintiffs to return the escrow deposit to Khanal. Plaintiffs sold the property to a third party on February 16, 2007 for $630,000. (Doc. No. 78 at 20.) By an order dated April 11, 2007, the New York State court granted summary judgment in favor of Khanal, finding that she was unable to obtain a loan commitment, directed plaintiffs to the return the $50,000 down payment. (Doc. No. 204, Ex. 2, Hacker Aff., Ex. C.)


III. Motion to Dismiss Pursuant to Rule 12(b)(1)

Fed. R. Civ. P. 12(b)(1) provides for the dismissal of a complaint when the federal court "lacks jurisdiction over the subject matter." Federal subject matter jurisdiction exists only when a "federal question" is presented under 28 U.S.C. § 1331, or, as provided in 28 U.S.C. § 1332, where the plaintiffs and all the defendants are of diverse citizenship and the amount in controversy exceeds $75,000. See Da Silva v. Kinsho Int'l Corp., 229 F.3d 358, 363 (2d Cir. 2000). If the exercise of that jurisdiction would result in the reversal or modification of a state court judgment, federal district courts lack subject matter jurisdiction, even if there is a predicate for the exercise of federal jurisdiction. Davis v. City of New York, No. 00 Civ. 4309 (SAS), 2000 WL 1877045, at *3 (S.D.N.Y. Dec. 27, 2000) (citing Rooker v. Fidelity Trust Co., 263 U.S. 413, 416, 44 S.Ct. 149, 150, 68 L.Ed. 362 (1923)). Where jurisdiction is lacking, the district court must dismiss the complaint without regard to its merits. Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1188 (2d Cir. 1996).

As the party "seeking to invoke the subject matter jurisdiction of the district court," Scelsa v. City Univ. of New York, 76 F.3d 37, 40 (2d Cir. 1996), the plaintiff must demonstrate by a preponderance of the evidence that there is subject matter jurisdiction. Aurecchione v. Schoolman Transp. Sys., Inc., 426 F.3d 635, 638 (2d Cir. 2005). In considering a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), federal courts "need not accept as true contested jurisdictional allegations." Jarvis v. Cardillo, No. 98 Civ. 5793 (RWS), 1999 U.S. Dist. LEXIS 4310, at *7 (S.D.N.Y. Apr. 6, 1999). Rather, a court may resolve disputed jurisdictional facts by referring to evidence outside the pleadings, such as affidavits. See Zappia Middle E. Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247, 253 (2d Cir. 2000); Filetech S.A. v. France Telecom S.A., 157 F.3d 922, 932 (2d Cir. 1998). Although "no presumptive truthfulness attaches to the complaint's jurisdictional allegations," Guadagno v. Wallack Ader Levithan Assocs., 932 F. Supp. 94, 95 (S.D.N.Y. 1996), a court should "'constru[e] all ambiguities and draw[] all inferences' in a plaintiff's favor." Aurecchione, 426 F.3d at 638 (quoting Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000)).

Here, plaintiffs allege jurisdiction pursuant to 28 U.S.C. §§ 1332(a) and 1367. Under 28 U.S.C. § 1332(a), federal district courts have original jurisdiction over all civil actions where there is diversity of citizenship between the parties and "the matter in controversy exceeds the sum or value of $75,000." 28 U.S.C. § 1332(a)(1). Plaintiffs allege, and defendants do not contest, that there is diversity of citizenship because all defendants are citizens of New York and both plaintiffs are citizens of Kansas.

The Melo defendants bring their motion to dismiss plaintiffs' contract claim in part pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction, alleging that the plaintiffs have not met the amount in controversy requirement in 28 U.S.C. § 1332(a). The Melo defendants argue that plaintiffs' breach of contract claim does not exceed the statutory amount of $75,000. (Doc. No. 203, Melo Mem. at 12.)

The Klie defendants and the NYCB defendants bring their motion to dismiss in part pursuant to Fed. R. Civ. P. 12(b)(1), alleging that the Rooker-Feldman doctrine bars the action as it is inextricably intertwined with a state court judgment, and unreviewable by the district court. (Doc. No. 223, Klie Mem. at 30; Doc. No. 231, NYCB Mem. at 7.)*fn4

A. The Amount in Controversy Requirement and the Melo Defendants' Motion to Dismiss for Lack of Subject Matter ...

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