UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK
January 23, 2012
ONEWEST BANK, FSB, AND DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE AND SUPPLEMENTAL INTEREST TRUSTEE WITH RESPECT TO INDYMAC IMSC MORTGAGE LOAN TRUST 2007-AR2, MORTGAGEPASS THROUGH CERTIFICATES SERIES 2007-AR2, PLAINTIFFS,
JOAM LLC, DEAN A. RESKAKIS, ANTHONY HORAN, FAIGE NEUMANN A/K/A FAGIE NEUMANN, ESTHER EREZ, SARA OVITS, SACCO & FILLAS, LLP, THE MORTGAGE ZONE, INC., GE LAND SERVICES, INC. D/B/A GE ABSTRACT LLC, 85 PULASKI STREET CORP., AND JOHN DOES 1-20, DEFENDANTS.
The opinion of the court was delivered by: John Gleeson, United States District Judge:
FOR ONLINE PUBLICATION ONLY
MEMORANDUM AND ORDER
Plaintiffs OneWest Bank, FSB ("OneWest") and Deutsche Bank National Trust Company ("Deutsche Bank"), as Trustee, allege in their Third Amended Complaint ("Complaint") that defendants Joam LLC ("Joam"), Dean A. Reskakis, Anthony Horan, Fagie Neumann, Esther Erez, Sara Ovits, Sacco & Fillas, LLP ("S&F"), The Mortgage Zone, GE Land Services Inc. d/b/a GE Abstract LLC, and 85 Pulaski Street Corp. ("85 Pulaski") defrauded plaintiffs in connection with a mortgage loan for property located at 1432 East 14th Street, Brooklyn, NY 11230 (the "Property"). Defendants S&F, Reskakis and Neumann now move to dismiss the Complaint on various grounds.*fn1
This is the moving defendants' second set of motions to dismiss, which have been styled as "renewed" motions to dismiss upon limited discovery. In July 2011, I provisionally denied the first set of motions to dismiss, subject to limited discovery to allow the plaintiffs to obtain documents establishing an affirmative assignment of ancillary claims when the mortgage note in question was initially assigned. See Memorandum and Order, No. 10-CV-1063 (JG) (SMG) (E.D.N.Y. July 26, 2011) (ECF No. 88) ("July Order"). The plaintiffs have now obtained such documents, and therefore I deny the motions to dismiss in substantial part. However, I dismiss the plaintiffs' claims for attorney malpractice for lack of standing, because the plaintiffs' claims derive from an assignment contract governed by California law, and under California law, such claims are unassignable.
A. The Facts
1. Original Loan Transaction
In 1998 Joseph Gutman deeded the Property to his three daughters, Neumann, Erez and Ovits (the "sisters") as tenants in common. (Compl. ¶ 27.)*fn3 On December 18, 2006, the sisters entered into a contract to sell the Property to Joam for $715,000. (Id. ¶ 28.) Reskakis, an attorney employed by S&F, represented Joam in the sale, which was completed on January 29, 2007. (Id. ¶ 29.) The transfer of title was never recorded and Joam has no recorded interest in the Property. (Id. ¶ 30.)
Three weeks after executing the sale contract with Joam, the sisters allegedly entered into a second contract to sell the Property on January 7, 2007 -- this time, to Horan. (Id. ¶ 31.) The purchase price of this second sale of the Property was $1,300,000. (Id. ¶ 32.) To finance the purchase, Horan obtained a first mortgage loan ("Horan Loan") from American Brokers Conduit ("American Brokers")*fn4 in the amount of $999,999.*fn5 Reskakis acted as agent and attorney for American Brokers for this transaction, in spite of having facilitated the sale of the same Property from the sisters to Joam soon before. (Id. ¶ 34.) The Horan Loan closed on April 13, 2007. (Id. ¶ 35.) On that day, American Brokers wired the $999,999 sum to Reskakis, and Horan executed a Mortgage and Note in favor of American Brokers.*fn6 (Id. ¶¶ 36-38.) Reskakis failed to record the second sale of the Property. (Id. ¶ 50.) Reskakis also failed to obtain title insurance for the Property, failed to pay off existing liens on the property, failed to prepare an accurate HUD-1 Settlement Statement, failed to distribute funds in accordance with the HUD-1 Settlement Statement and failed to account for the funds that American Brokers sent to him. (Id. ¶¶ 49-50.) Reskakis made several distributions of funds from the Horan Loan proceeds by checks written on the S&F attorney account. (Id. ¶¶ 42-44, 47.) Reskakis was employed by S&F during the sales to Joam and Horan, and allegedly S&F was aware of Reskakis's wrongful actions and of other incidents of intentional wrongdoing and malpractice by Reskakis prior to the Horan Loan. (Id. ¶¶ 52-53.)
2. Transfer of Horan Loan from American Brokers to IndyMac
Around May 2007, a batch of mortgage loans including the Horan Loan was sold by American Brokers to IndyMac Bank, F.S.B. ("IndyMac"). A document called the Mortgage Loan Purchase and Interim Servicing Agreement ("MLPISA")*fn7 governed this transaction. The MLPISA states that it is "intended to set forth the terms and conditions by which Seller [i.e., American Brokers] shall transfer and Purchaser [i.e., IndyMac] shall acquire" certain mortgage loans. (MLPISA, p. 1.) The MLPISA defined "Mortgage Loan" as "[a]n individual mortgage loan which is the subject of this Agreement, . . . [as] identified on the Mortgage Loan Schedule, which Mortgage Loan includes without limitation the Mortgage File, the Monthly Payments, and all other rights, benefits, proceeds and obligations arising from or in connection with such Mortgage Loan."*fn8 (MLPISA, art. I, p. 4.) A Mortgage Loan Schedule from American Brokers' records includes the Horan Loan at line 51.*fn9 (Colagiacomo Dec. ¶ 6.) A letter entitled "Purchase Bid and Trade Confirmation"*fn10 sent from IndyMac to American Brokers on May 4, 2007, described the transaction as a "servicing-released purchase," confirming that the sale included the servicing rights for the loans. (Colagiacomo Dec. ¶ 6; Voulo Dec. ¶ 3).
The MLPISA contained the following California choice-of-law provision at § 5.08: "This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to agreements entered into and wholly performed within that state." (MLPISA § 5.08, p. 25.)
3. Pooling and Service Agreement Among IndyMac, IndyMac MBS, and Deutsche Bank
On July 1, 2007, IndyMac, IndyMac MBS, Inc. ("IndyMac MBS"), and Deutsche Bank entered into a Pooling and Servicing Agreement ("PSA").*fn11 Pursuant to § 2.01 of the PSA, IndyMac transferred ownership of the Horan Loan to IndyMacMBS. (PSA § 2.01.)*fn12 IndyMac MBS then assigned its interest in the loan to a trust controlled by Deutsche Bank. (PSA p. 1.) However, under § 3.01 of the PSA, IndyMac retained servicing rights over the loan, including the right to "undertak[e] any legal action that it may deem appropriate with respect to the Mortgage Loans including, without limitation, any rights or causes of action arising out of the origination of the Mortgage Loans." *fn13 (PSA § 3.01.)
4. IndyMac Goes Into FDIC Receivership
In July 2008, the Office of Thrift Supervision closed IndyMac and appointed the
FDIC as receiver, pursuant to 12 U.S.C. § 1464(d)(2)(A). (Compl. ¶ 8.) At that time, the FDIC, "by operation of law, succeed[ed] to . . . all rights, titles, powers, and privileges of" IndyMac, and obtained the right to "perform all functions of" IndyMac. See 12 U.S.C. § 1821(d)(2)(A)-(B). The FDIC then created a new entity called IndyMac Federal Bank, FSB ("IndyMac Fed"), with itself as conservator. See id. § 1821(d)(2)(F) (conferring this power on FDIC). On July 11, 2008, the FDIC-as-receiver for IndyMac, the FDIC-as-conservator for IndyMac Fed, and the FDIC for itself entered into an agreement entitled the Amended and Restated Insured Deposit Purchase and Assumption Agreement ("APAA").*fn14 Under the APAA, IndyMac Fed assumed all "right, title, and interest" of IndyMac in the Horan loan. (APAA § 3.1.)*fn15 However, § 3.4(b) of the APAA excluded from the assignment "any interest, right, action, claim, or judgment against (i) any . . . attorney, or any other Person employed or retained by the Failed Bank [i.e., IndyMac] . . . arising out of any act or omission by such Person in such capacity . . . or (iv) any other Person whose action or inaction may be related to any loss (exclusive of any loss resulting from such Person's failure to pay on a Loan made by the Failed Bank) incurred by the Failed Bank; provided, that for the purposes hereof, the acts, omissions or other events giving rise to any such claim shall have occurred on or before Bank Closing, regardless of when any such claim is discovered . . . ."
5. Assignment of Horan Loan from the FDIC to OneWest
On March 19, 2009, the FDIC entered into an agreement with OneWest
the Servicing Business Asset Purchase Agreement ("SBAPA"),*fn16
which assigned the Horan Loan to OneWest. The SBAPA provided
that "Seller [i.e., the FDIC, as receiver for IndyMac Fed*fn17
hereby sells, transfers, conveys, assigns and delivers to the
Purchaser [i.e., OneWest], and the Purchaser hereby purchases, accepts
and assumes from the Seller, without representation or warranty,
express or implied, except as set forth in this Agreement . . . , all
of the Seller's rights, title and interests in, to and under the
Assets." (SBAPA § 2.01.) "Assets" were defined to include "all
Servicing Rights accruing to the Seller under the Servicing
Agreements," which are defined as "all Contracts . . . pursuant to
which the Seller acts as a mortgage loan servicer," as well as "all
rights to causes of action, lawsuits, judgments, claims and demands of
any nature available to or being pursued by or for the benefit of the
Seller with respect to . . . the ownership, use, function, value of or
other rights pertaining to any Asset, whether arising by way of
counterclaim or otherwise." (SBAPA §§ 1.01, 2.01(a), (g).)
6. Criminal Charges Against Reskakis
On or about October 13, 2009, Reskakis, together with several other individuals, was indicted for bank fraud and conspiracy to commit wire and bank fraud for acts allegedly committed by Reskakis between June 2007 and January 2008. (Dougherty Aff., Ex. B ¶ 8.)*fn18
Reskakis and others were accused of defrauding lenders by using straw buyers to falsely obtain loans in a scheme similar to the one alleged by plaintiffs. (Id. ¶¶ 8-9.)*fn19
B. Procedural History
OneWest filed its initial complaint in this action on March 9, 2010. (ECF No. 1.)
On December 29, 2010, Deutsche Bank joined the case as a plaintiff, and OneWest and Deutsche Bank jointly filed the Third Amended Complaint ("Complaint"), which is the operative pleading for purposes of the instant motions to dismiss. (ECF No. 45.) The Complaint alleges fourteen causes of action.
S&F, Reskakis and Neumann each filed motions to dismiss the Complaint. (ECF Nos. 21, 25, 49, 51.) S&F's memorandum (which Reskakis adopted) challenged this court's subject matter jurisdiction and the plaintiffs' standing to bring ancillary tort claims that arose from the originating loan transaction. (ECF No. 51.) S&F also sought to dismiss certain claims on the ground that they were insufficiently pled. (ECF No. 51.) Neumann joined S&F's arguments in full and further sought to dismiss the claims against her for fraud, unjust enrichment and an equitable lien as deficiently pled and implausible. (ECF No. 49.) In July 2011, I denied these motions without prejudice to renewal after limited discovery into standing. See July Order at 13-14.
At the conclusion of the limited discovery period, S&F (joined in full by Reskakis) and Neumann filed renewed motions to dismiss the Complaint.*fn20 (ECF Nos. 98-100.)
The parties no longer challenge subject matter jurisdiction. However, S&F again argues that the plaintiffs lack standing to sue for ancillary claims arising from the originating loan transaction. (ECF No. 99.) Both S&F and Neuman also argue that the plaintiffs' common law claims against them should be dismissed as deficiently pled and otherwise implausible. (ECF Nos. 98-99.)
A. Legal Standard
In evaluating a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a court accepts the truth of the facts alleged in the complaint and draws all reasonable inferences in the plaintiffs' favor. Roth v. Jennings, 489 F.3d 499, 510 (2d Cir. 2007). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim that is plausible on its face.'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950.
On a motion to dismiss "the complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." Chambers, 282 F.3d at 152 (quoting Int'l Audiotext Network, Inc. v. Am. Tel. Co., 62 F.3d 69, 72 (2002)). "Even where a document is not incorporated by reference, the court may nevertheless consider it where the complaint 'relies heavily upon its terms and effect,' which renders the document 'integral' to the complaint." Id. at 153 (quoting Int'l Audiotext, 62 F.3d at 72).
B. Standing Analysis
1. Whether the Claims Against S&F and Reskakis Were Assigned by American Brokers to IndyMac through the MLPISA
All relevant events surrounding the origination of the Horan Loan occurred in New York. Horan, a New York resident, applied for and closed on the loan in New York, to finance the purchase of a property in New York. Reskakis, a resident and licensed attorney of New York, oversaw the closing in New York and received and distributed the loan proceeds in New York. Accordingly, the parties agree that New York law governs the substance of any ancillary tort claims that accrued to American Brokers as a result of the events surrounding the loan transaction.
However, the plaintiff here is not American Brokers. American Brokers assigned its interest in the Horan Loan to IndyMac a few months after funding the loan. The parties' limited discovery has produced the document which governed this assignment: the MLPISA. The question before me is whether IndyMac received through its assignment from American Brokers not just the right to the stream of payments due on the note for the Horan Loan, but also the right to bring ancillary claims arising from the circumstances of the loan's origination. Under the terms of the MLPISA, American Brokers' conveyance of the Horan Loan expressly included "without limitation the Mortgage File, the Monthly Payments, and all other rights, benefits, proceeds and obligations arising from or in connection with such Mortgage Loan." (MLPISA, p. 4 (emphasis added).) The MLPISA also provided that the agreement "shall be governed by and construed in accordance with the laws of the State of California." (MLPISA § 5.08.)
In a diversity action such as this one, a federal court applies the choice-of-law rules of the state in which the court sits. See Schwartz v. Liberty Mut. Ins. Co., 539 F.3d 135, 147 (2d Cir. 2008). New York choice-of-law rules provide that in interpreting a contract with an express choice-of-law provision, a court should apply the law selected in the contract.*fn21
Hartford Fire, 230 F.3d at 556. Therefore, California law governs the interpretation of the MLPISA, including the question of whether the MLPISA conveyed to IndyMac ancillary claims deriving from the origination of the Horan Loan.*fn22
California law allows for the broad assignability of claims. See generally 7 Cal. Jur. 3d Assignments § 4. Since a legislative change in 1872, it has been the law of California that "assignability of things in action is now the rule; nonassignability, the exception." Goodley v. Wank & Wank, 62 Cal. App. 3d 389, 395 (Cal. Ct. App. 1976) (quoting Rued v. Cooper, 109 Cal. 682, 693 (1893)); see Cal. Civ. Code § 954 ("A thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner."); see also id. § 953 ("A thing in action is a right to recover money or other personal property by a judicial proceeding.").
However, California law generally prohibits the assignment of claims for legal malpractice. Goodley, 62 Cal. App. 3d at 395; Jackson v. Rogers & Wells, 210 Cal. App. 3d 336 (Cal. Ct. App. 1989). See generally 7 Cal. Jur. 3d Assignments §§ 6-7. The Second Circuit has held -- in a case analogous to this one -- that where a California choice-of-law provision governed an assignment contract, the contract could not have transferred any potential legal malpractice claims, even if such claims arose in a state which freely allows the assignment of legal malpractice claims. New Falls, 352 F. App'x at 598.*fn23 The court held: "California law determined [the parties'] rights and obligations under the assignment contract. As a result, the rights that [the assignee] acquired in the assignment could not have included a right to bring malpractice claims, which is a right that cannot be assigned under California law." Id.
Therefore, although the MLPISA broadly transferred "all other rights, benefits, proceeds and obligations arising from or in connection with" the Horan Loan (MLPISA, p. 4), which I expressly find includes the right to bring ancillary claims arising from the loan origination,*fn24 the MLPISA did not transfer potential legal malpractice claims to IndyMac, because such claims are unassignable under California law. Accordingly, I conclude that the legal malpractice claims against Reskakis and S&F (plaintiffs' first and twelfth causes of action) must fail for lack of standing, because the first link of the assignment chain leading from American Brokers to OneWest failed to transfer the right to bring these claims.
However, although California prohibits the assignment of ordinary legal malpractice claims, claims of fraud -- even when brought against an attorney -- are assignable. "Fraud or deceit is not legal malpractice . . . . Fraud is no more a necessary incident to the rendition of legal services than dishonesty is to any other profession. The avoidance of fraudulent conduct requires no special skill or knowledge, but only basic precepts of honesty and integrity." Jackson, 210 Cal. App. 3d at 344 (quoting Mallen & Smith, Legal Malpractice § 8.8, p. 421 (3d ed. 1989)). Regardless of how a plaintiff labels his claims, his claims sound in legal malpractice and are nonassignable where they "require[e] a trial court to second-guess the attorney's professional evaluations" or to evaluate "'judgment calls' within the scope of the attorney's legal representation of the client." Id. at 346. However, where a plaintiff alleges "a calculated course of deception," as opposed to merely "a series of poor 'judgment calls'" the fraud claim is distinct from an ordinary legal malpractice claim, despite any "[f]actual overlap between the allegations supporting" the two claims. Landmark Screens, LLC v. Morgan, Lewis & Bockius LLP, No. 08-CV-2851 (HRL), 2009 WL 160214, at *6 (N.D. Cal. Jan. 20, 2009).*fn25
Here, the Complaint alleges that S&F and Reskakis engaged in intentional fraud and deceit that deprived American Brokers (IndyMac's assignor) of specific property of independent value: namely, $999,999 in loan proceeds. The claim is not just that Reskakis's conduct fell below the general standard of care expected of the legal profession by making poor judgment calls. If the Complaint's allegations are true, Reskakis intentionally defrauded American Brokers by, inter alia, engineering a duplicate sale of the same property, concealing the fact of the first sale from the bank to induce it to finance the second sale, and intentionally eliciting an inflated appraisal for the property to induce the bank to release enough funds both to cover the cost of the home and to pay off all participants in the scheme. Because this claim goes far beyond ordinary legal malpractice and alleges a fraud that resulted in the deprivation of determinable property, under California law, such claims are assignable.
Accordingly, I find that all other ancillary claims against S&F and
Reskakis were successfully assigned by the MLPISA.*fn26
The MLPISA's language was broad enough to encompass ancillary
claims. Assignment of these claims is permitted under California law
because they allege fraud and deceit outside the realm of mere
negligence, which led to the loss of specific property that is
independent of the purely personal wrong of delivering substandard
legal services. Thus, so long as the remaining links in the assignment
chain were adequate to convey the claims, the plaintiffs have
satisfied their burden of demonstrating standing to bring the other
causes of action against S&F and Reskakis.*fn27
2. Whether the Claims against Reskakis and S&F Were Transferred to IndyMac Fed under the APAA
The defendants contest one other link in the assignment chain of the Horan Loan.*fn28 The defendants argue that the APAA, which governed the assignment of the Horan Loan from IndyMac (then in FDIC receivership) to IndyMac Fed (in FDIC conservatorship), excluded ancillary claims from the assignment. They base this argument on § 3.4(b) of the APAA, which provides that
The Assuming Bank [i.e., IndyMac Fed] does not purchase, or obtain an option to purchase under this Agreement: . . .
(b) any interest, right, action, claim, or judgment against (i) any . . . attorney, or any other Person employed or retained by the Failed Bank [i.e., IndyMac] . . . arising out of any act or omission by such Person in such capacity . . . or (iv) any other Person whose action or inaction may be related to any loss (exclusive of any loss resulting from such Person's failure to pay on a Loan made by the Failed Bank) incurred by the Failed Bank; provided, that for the purposes hereof, the acts, omissions or other events giving rise to any such claim shall have occurred on or before Bank Closing, regardless of when any such claim is discovered . . . .
APAA § 3.4(b)(i), (iv).
This argument lacks merit. The claims against Reskakis and S&F clearly were not excluded by subsection (i), which on its face applies only to claims against attorneys or other persons "employed or retained by" the Failed Bank, i.e., IndyMac. S&F admits that neither S&F nor Reskakis was employed or retained by IndyMac. Instead, S&F argues that, in "equity," S&F should be treated as if it were retained by IndyMac, because it was retained by American Brokers, and IndyMac stepped into the shoes of American Brokers when it was assigned the loan. S&F Memo. at 17. I disagree. Because S&F and Reskakis were never employed or retained by IndyMac, APAA § 3.4(b)(i) does not apply to claims against them, and I decline to broaden the scope of this exception beyond its textual boundaries.
Nor did subsection (iv) exclude these claims. At first blush, it might appear that Reskakis qualifies as "any other Person whose action or inaction may be related to any loss . . . incurred by the Failed Bank." APAA § 3.4(b)(iv). However, the provision relates only to losses that were incurred by the Failed Bank, i.e., IndyMac. The losses relating to the conduct of Reskakis and S&F were incurred by American Brokers -- the victim of the fraud. IndyMac did not itself incur any loss as a result of Reskakis and S&F's conduct. Instead, what IndyMac received and held was an asset -- the right to bring a claim against Reskakis and S&F for the fraud they perpetrated on American Brokers. IndyMac also received a mortgage loan that was worth less than its apparent value, i.e., the Horan Loan itself. But even a less valuable asset is still an asset; this too does not qualify as a "loss . . . incurred by" IndyMac.*fn29 Accordingly, I find that the APAA transferred the right to bring these claims to IndyMac Fed, notwithstanding § 3.4(b) of the agreement.
C. Sufficiency of the Pleadings
S&F and Neumann also argue that the common law causes of action asserted in the Complaint are deficiently pled. S&F contends that the allegations of supervisory responsibility were not pled with sufficient particularity, that the plaintiffs have not established privity for the breach of fiduciary duty claim, that equity does not weigh in favor of an unjust enrichment award, that there is a separate legal remedy precluding an accounting remedy and that the conversion claim against Reskakis is improperly premised on a breach of contract. S&F Memo. at 19-30. I find that the Complaint sufficiently states a cause of action for each of these claims.
Neumann argues that the claims against the sisters -- for fraud, equitable lien, and unjust enrichment -- should be dismissed because "it would appear that" the sisters did not know about Reskakis's fraud and were themselves pawns in his scheme. Neumann Memo. at 8 (ECF No. 98-6). Discovery may in fact exonerate the sisters from liability for the fraud. However, at this early stage, the Complaint clearly states a basis for its claims against the sisters. The sisters' signatures are affixed to two different sales contracts -- one to Joam for $715,000, and one to Horan for $1.3 million. Although Neumann attempts to assert through her moving papers that "[t]he sisters were unaware of" the second sale, and that "their purported signatures on the documents from the alleged second sale were forgeries," Neumann Memo. at 3, I must accept the allegations of the Complaint as true and draw all reasonable inferences in favor of the plaintiffs. Accepting as true that the second sale contract bore the sisters' signatures, I am bound to draw the inference at this early stage that the sisters were complicit in the scheme to sell their house twice and defraud the bank in the process.
Because the first assignment of the Horan Loan did not include the right to bring attorney malpractice claims, S&F's motion to dismiss the Complaint is granted in limited part: The first and twelfth causes of action asserted in the Complaint are dismissed for lack of standing. The motions to dismiss the Complaint filed by S&F, Reskakis and Neumann are otherwise denied, as the plaintiffs' remaining claims are adequately pled and state causes of action upon which relief can be granted.
John Gleeson, U.S.D.J.