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Hennessy v. Dawson

January 7, 2010

THOMAS HENNESSY, BETTY HENNESSY, JOHN HASLBAUER, BARBARA HASLBAUER, NICHOLAS GAROLFALO, ROSEMARY GAROFALO, DWAYNE WOOD, MARIE MAGNUS, DONNA FISCHER, LEE FISCHER, SUMMER FISCHER, TIMOTHY FISCHER, LOUIS PREVET, MARION PREVET, DANIEL AGOSTINELLI, HARRIET AGOSTINELLI, RICHARD CALDERALE, LINDA CALDERALE, RICHARD CALDERALE, CHRISTINE CALDERALE, JASON BUSKE, LAURIN BUSKE, JIM CARNEY, REGINA CARNEY, JUDITH LEONARD, MARK AROCHO, MICHELLE AROCHO, DON MOY, LILLIAN MOY, THOMAS GEIST, JOY GUEST, PASQUALE AIELLO, MARY AIELLO, JAMES VALLAR, JENNIE VALLAR, MICHAEL PECK, SALVATORE MESSANA, CONCETTA MESSANA, MICHAEL SMAR, PATRICIA SMAR, AND JOHN AND JANE DOES "1-100", PLAINTIFFS,
v.
PETER J. DAWSON, BMG ADVISORY SERVICES, LTD., BRASH MANAGEMENT GROUP, LTD., ETHAN THOMAS CO., INC., TAXX PLUS SERVICES, LTD., LISA DAWSON, BRUCE BAKER, GARY WINSLOW, 21ST CENTURY FINANCIAL SERVICES, INC., FFP SECURITIES, INC., INVEST FINANCIAL CORPORATION, CHARLES MAZZIOTI, GRANITE SECURITIES, LLC, PHH MORTGAGE CORPORATION, FIRST NATIONAL BANK OF LONG ISLAND, COUNTRYWIDE HOME LOANS, INC., HOMECOMINGS FINANCIAL, LLC, WASHINGTON MUTUAL, INC., FEDERAL DEPOSIT INSURANCE CORPORATION (AS RECEIVER FOR INDYMAC BANK F.S.B.), CUSTOM CAPITAL CORPORATION, OASIS MORTGAGE, INC., NATIONWIDE LIFE INSURANCE COMPANY, AMERICAN SKANDIA LIFE ASSURANCE COMPANY, FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY, AXA EQUITABLE LIFE INSURANCE COMPANY, AND XYZ CORP. ("1-10"), DEFENDANTS.



The opinion of the court was delivered by: Seybert, District Judge

MEMORANDUM & ORDER

Plaintiffs Thomas Hennessy, Betty Hennessy, John Haslbauer, Barbara Haslbauer, Nicholas Garofalo, Rosemary Garofalo, Dwayne Wood, Marie Magnus, Donna Fischer, Lee Fischer, Summer Fischer, Timothy Fischer, Louis Prevet, Marion Prevet, Daniel Agostinelli, Harriet Agostinelli, Richard Calderale, Linda Calderale, Richard Calderale, Christine Calderale, Jason Buske, Laurin Buske, Jim Carney, Regina Carney, Judith Leonard, Mark Arocho, Michelle Arocho, Don Moy, Lillian Moy, Thomas Geist, Joy Guest, Pasquale Aiello, Mary Aiello, James Vallar, Jennie Vallar, Michael Peck, Salvatore Messana, Concetta Messana, Michael Smar, Patricia Smar, and John and Jane Does "1-100", ("Plaintiffs") commenced this action against Defendants Peter J. Dawson, BMG Advisory Services, Ltd., Brash Management Group, Ltd., Ethan Thomas Co., Inc., Taxx Plus Services, Ltd., Lisa Dawson, Bruce Baker, Gary Winslow, 21st Century Financial Services, Inc., FFP Securities, Inc., Invest Financial Corporation, Charles Mazzioti, Granite Securities, LLC, PHH Mortgage Corporation, First National Bank of Long Island, Countrywide Home Loans, Inc., Homecomings Financial, LLC, Washington Mutual, Inc., Federal Deposit Insurance Corporation (as receiver for IndyMac Bank F.S.B.), Custom Capital Corporation, Oasis Mortgage, Inc., Nationwide Life Insurance Company, American Skandia Life Assurance Company, First Allmerica Financial Life Insurance Company, AXA Equitable Life Insurance Company, and XYZ Corp. ("1-10") in the Supreme Court of the State of New York, County of Nassau, on or about November 21, 2006. Plaintiffs allege numerous state causes of action against a number of Defendant broker-dealers, mortgage brokers, lenders, and insurance companies for their alleged participation in a scheme to defraud the Plaintiffs, orchestrated by Defendant Peter J. Dawson ("Dawson").

On or about May 21, 2009, Defendant Federal Deposit Insurance Corporation ("Defendant FDIC"), a party that substituted Defendant IndyMac Bank, F.S.B., removed this action pursuant to 12 U.S.C. § 1819(b)(2)and 28 U.S.C. § 1441(b). (Docket Entry 1.) Presently pending before this Court is Defendant Invest Financial Corporation's ("Defendant IFC") and Defendant PHH Mortgage Corporation's ("Defendant PHH") (collectively, the "Defendants") motions to sever the claims against them respectively, and remand these claims to the Supreme Court of the State of New York, County of Nassau pursuant to Rule 21 and 28 U.S.C. § 1441(c). For the reasons set forth herein, these pending motions are DENIED.

BACKGROUND

I. Procedural Background

As noted above, Plaintiffs filed this action in the Supreme Court of the State of New York, County of Nassau, on or about November 21, 2006. On May 21, 2009, Defendant FDIC filed a notice of removal in this Court removing this action based on 12 U.S.C. § 1819(b)(2)and 28 U.S.C. § 1441(b). (Docket entry 1.)

On June 3, 2009, Defendant PHH served and filed a motion to sever and remand based on Rule 21 and 28 U.S.C. § 1441(c). (Docket Entry 6.) On June 17, 2009, Plaintiffs filed their memorandum in opposition to Defendant PHH's motion to sever and remand. (Docket Entry 11.) On June 19, 2009, Defendant IFC filed its motion to sever and remand pursuant to Rule 21 and 28 U.S.C. § 1441(c). (Docket Entries 13 and 15.) On June 22, 2009, Defendant IFC filed a reply memorandum in further support of its' motion to sever and remand. (Docket Entry 23.) On July 6, 2009, Plaintiffs filed their memorandum in opposition to Defendant IFC's motion to remand and sever. (Docket Entry 21.)

II. Factual Background

Plaintiffs, who are retirees and elderly investors, allege in the Third Amended Complaint that Dawson and Defendants BMG Advisory Services, Ltd. ("BMG Advisory"), Brash Management Group, Ltd. ("BMG") and Ethan Thomas Co., Inc., ("Ethan Thomas") engaged in a fraudulent "ponzi" scheme from 2003 through 2006, to misappropriate and/or convert the Plaintiffs' respective retirement savings, proceeds from surrendered annuities policies, and proceeds from their mortgage and home equity loans (collectively, the "funds"). (Compl. ¶¶ 60, 235.) Specifically, Plaintiffs allege the misappropriation and/or conversion of these funds could not have been accomplished without the assistance of the various Defendant broker-dealers, mortgage brokers, lenders, and insurance companies. (Compl. ¶¶ 51, 61.)

Since the late 1990's, Dawson has conducted business as a financial advisor through BMG Advisory, BMG and Ethan Thomas. (Compl. ¶ 47.) Dawson was also the sole owner of these respective companies. (Compl. ¶¶ 22-24.) Moreover, Dawson was employed by 21st Century Financial Services, Inc. ("21st Century"), and held his license pursuant to the National Association of Securities Dealers, Inc. ("NASD") through 21st Century. (Compl. ¶ 48.) Plaintiffs allege that Dawson advised them to surrender their life insurance and annuities policies (collectively, the "policies") so that he could invest the proceeds on their behalf. (Compl. ¶ 51.) Dawson, however, misappropriated and/or converted these policies by depositing the proceeds into his own name or that of BMG Advisory, BMG and/or Ethan Thomas (Id.) Plaintiffs further argue that 21st Century, as Dawson's employer, should be liable for Dawson's misappropriation and/or conversion of these policies under the theory of respondent superior. (Compl. ¶¶ 88, 262-265). Likewise, the Plaintiffs allege that 21st Century breached certain supervisory and pre-hiring diligence duties regarding Dawson under certain NASD and Federal Securities laws. (Compl. ¶¶ 88, 262-265.) 21st Century, however, is no longer in business. (Compl. ¶ 92.) Plaintiffs contend that in or about October 2005, Defendant IFC acquired 21st Century and assumed its employees, assets, customer accounts and obligations. (Compl. ¶ 267.) As such, Plaintiffs argue that Defendant IFC is an "alter ego" or "successor in interest" to 21st Century, and thus is jointly and severally responsible for any liability of 21st Century. (Compl. ¶ 31.)

Plaintiffs also contend that from 2003 through 2006, Dawson further advised and arranged for the Plaintiffs to take out home equity and mortgage loans, even though their homes were paid in full and/or had no income to support such loans. (Compl. ¶¶ 52, 60.) After the Defendant lenders and mortgage companies approved and closed the loans, Dawson then diverted the loan and mortgage proceeds to himself and/or BMG Advisory, BMG and Ethan Thomas. (Compl. ¶ 60.) Plaintiffs specifically allege that Defendant PHH assisted Dawson in his fraudulent scheme by approving mortgage loans beyond what the Plaintiffs could pay based upon their income. (Compl. ¶¶ 60-61.) In particular, Plaintiffs contend that Defendant PHH failed to conduct its own due diligence and adhere to "safe and sound" lending policies pursuant to certain banking regulations, despite apparent irregularities and "red flags" throughout the loan process. (Compl. ¶¶ 63-64, 71-72, 74.) Plaintiffs further allege that Defendant PHH is liable for Defendant mortgage company Custom Capital Corporation's ("Custom Capital") falsification of loan applications. (Compl. ¶¶ 69-70.) For instance, Dawson had a referral relationship with Custom Capital. (Compl. ¶¶ 62, 69.) Consequently, Custom Capital was involved in all of the mortgage loan closings issued by Defendant PHH. (Compl. ¶¶ 62, 69.) Plaintiffs allege that Custom Capital falsified the loan applications to reflect that Plaintiffs qualified for the loans. (Compl. ¶ 69.) In return for closing the mortgage loans and verifying that the Plaintiffs were qualified for the loans, Defendant PHH paid Custom Capital thousands of dollars in fees. (Compl. ¶ 70.) Plaintiffs argue that since lenders can only legally pay an appointed "agent" pursuant to § 3500.14(g)(iii) of the HUD Regulations pursuant to the § 2607 of the Real Estate Settlement Procedures Act Regulations, Defendant Custom Capital was an agent of Defendant PHH. (Compl. ¶ 70.) Therefore, the Plaintiffs contend that Defendant PHH is liable for the conduct of Defendant Custom Capital. (Id.)

Plaintiffs seek declaratory judgment declaring that their loans and mortgages be void and unenforceable, and permanent injunction preventing any action to foreclose or collect on the loans issued by the lenders. Plaintiffs also seek punitive damages, attorney's fees, costs, and interest for the misappropriation and/or conversion of their funds, and general damages in the amount of their respective mortgage loans, interest paid on those loans, and associated closing fees.

DISCUSSION

I. Remand under 28 U.S.C. ...


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