United States District Court, E.D. New York
MICHAEL T. DOLAN, Plaintiff, -
- FAIRBANKS CAPITAL CORPORATION, a Utah corporation, and PMI MORTGAGE INSURANCE COMPANY, Walnut Creek, CA, Defendants
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
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MICHAEL T. DOLAN, Plaintiff, Pro se, Smithtown, New York.
For Fairbanks Capital Corporation, Defendant: Riyaz Gulam Bhimani, Esq., ECKERT SEAMANS CHERIN & MELLOTT, LLC, White Plains, New York.
For PMI Mortgage Insurance Company, Defendant: John L. Altieri, Jr., Esq., BOUTIN & ALTIERI, PLLC, Fairfield, Connecticut.
Denis R. Hurley, Senior United States District Judge.
MEMORANDUM AND ORDER
Pro se plaintiff Michael T. Dolan (" plaintiff" or " Dolan" ) commenced this action alleging that defendants Fairbanks Capital Corp. (" FCC" ) and PMI Mortgage Insurance Company (" PMI" ) violated various federal and state laws in connection with the servicing of his mortgage and related foreclosure proceedings. Presently before the Court are separate motions made by FCC and PMI pursuant to Federal Rule of Civil Procedure (" Rule" ) 56 seeking dismissal of the Second and Third Amended Complaints. For the reasons set forth below, FCC's motion is granted in part and denied in part and PMI's motion is granted in its entirety.
The following facts, which are drawn from the parties' Local Civil Rule 56.1
Statements, the pleadings and the voluminous exhibits attached thereto, and the parties' submissions, are undisputed unless otherwise noted.
On February 11, 1998, plaintiff executed, acknowledged and delivered to non-party Premier Mortgage Corp. (d/b/a PMC Mortgage Co.) (" Premier" ) a note in the principal amount of $224,000 (the " Note" ), which was secured by a mortgage (the " Mortgage" ) encumbering the property located at 21 Kent Place, Smithtown, New York (the " Property" ). (Decl. of Riyaz G. Bhimani, dated May 20, 2011 (" Bhimani Decl." ), Exs. A & B.) In June 1998, the Note and Mortgage were assigned from Premier to TMS Mortgage Inc. (d/b/a The Money Store) (" TMS" ), and this assignment was recorded in the Office of the Clerk of Suffolk County on August 2, 1999.
On August 11, 2000, plaintiff and his wife, Donna Dolan, entered into a forbearance agreement with TMS (the " August 2000 Forbearance Agreement" ). According to that agreement, plaintiff had " failed to make regular monthly payments" as required by the Note and Mortgage, the loan was in default, and TMS had " instituted foreclosure."  (Bhimani Decl., Ex. D at unnumbered page 3.) At plaintiff's request, TMS had agreed to enter into the August 2000 Forbearance Agreement and hold foreclosure proceedings in abeyance. Pursuant to the August 2000 Forbearance Agreement, plaintiff was required to pay a total of $51,136.10 " to bring the loan current through and including the 08/17/00 payment." ( Id.) The agreement set forth a payment schedule that required plaintiff to make monthly forbearance payments in addition to his regularly scheduled monthly mortgage payments. ( Id.)
On November 7, 2000, TMS notified plaintiff that FCC would begin servicing plaintiff's mortgage as of November 22, 2000. (Bhimani Decl., Ex. E.) Plaintiff asserts that the August 2000 Forbearance Agreement, which had been executed several months prior to FCC's involvement with his loan, " was in-force at the time of the transfer to FCC" and that plaintiff made monthly payments to FCC pursuant to the August 2000 Forbearance Agreement beginning in November 2000. (3d Am. Compl. ¶ 7.)
On October 22, 2001, TMS commenced foreclosure proceedings against plaintiff in New York State Supreme Court, Suffolk County. (Bhimani Decl., Ex. F.) In the complaint filed in those proceedings, TMS alleged that plaintiff had " failed to make and pay the installment of principal and interest due and owing on October 17, 2000 and thereafter, despite due demand therefor."  ( Id. at ¶ 7.) Thus, TMS sought " the unpaid principal sum of the NOTE and MORTGAGE in the amount of $220,852.53 with accrued interest at 14.125% per annum, from September 17, 2000." ( Id. ¶ 8.)
On September 23, 2002, FCC (as the servicing agent for TMS) and Dolan entered into a second forbearance agreement (the " September 2002 Forbearance Agreement" ), which was filed in the foreclosure action. (Bhimani Decl., Ex. G.) That
agreement provided that plaintiff had failed to make monthly payments as of October 17, 2000 and, as such, TMS had " elected to declare the unpaid principal sum of the NOTE and MORTGAGE in the amount of $220,852.53 with accrued interest at 14.125% per annum, from September 17, 2000, to be immediately due and payable." ( Id. ¶ 7.) In the agreement, Dolan " acknowledged that [he] is indebted to [TMS] in . . . the sum of $87,567.71," and agreed to the payment plan set forth in the September 2002 Forbearance Agreement. ( Id. ¶ 8.) In exchange, TMS agreed " to take no further action to foreclose the Mortgage." ( Id.)
The September 2002 Forbearance Agreement required plaintiff to " make a down payment of $15,000 on or before September 16, 2002," and then make five monthly payments of $4,000 between October 2002 and February 2003. ( Id. ¶ 9a.) On or about September 30, 2002, Dolan made the required $15,000 down payment. (Bhimani Decl., Ex. K at ¶ 9 and Ex. M at 1; 3d Am. Compl. ¶ 10 & Ex. 6.) Plaintiff asserts that he " was forced to pay [this amount] or FCC would foreclose." (3d Am. Compl. ¶ 10.)
In November 2002, FCC determined that plaintiff was in default of the September 2002 Forbearance Agreement and the foreclosure proceedings brought by TMS against Dolan were reinstated. ( See Bhimani Decl., Ex. C at ¶ 11.) On May 30, 2003, the Property was sold pursuant to a Judgement of Foreclosure and Sale to non-party Michael Haley, who then assigned his rights in the Property to non-party Anthony Rigole. ( See Bhimani Decl., Ex. I at 1; Pl.'s Opp'n, Ex. A at unnumbered page 7-8.) Subsequently, Dolan -- who had not, up to that point, entered any appearance in the foreclosure action -- moved to vacate the Judgement of Foreclosure and Sale as well as the subsequent sale of the Property. (Bhimani Decl., Ex. I at 1.) Rigole brought separate eviction proceedings against Dolan, and those proceedings were joined with the foreclosure action. ( Id.) Dolan was granted temporary injunctive relief and awarded possession of the Property pending the outcome of the foreclosure proceedings. ( Id.) Neither FCC nor PMI were named as parties in the foreclosure proceeding.
On July 1, 2003, while the foreclosure action remained pending, FCC transferred to Wilshire Credit Corporation (" Wilshire" ) all of its servicing rights to plaintiff's loan. (Bhimani Decl., Ex. J.)
Subsequent State Court Proceedings
On March 22, 2004, New York State Supreme Court Justice Patrick Henry issued an interim order that, inter alia, denied without prejudice Dolan's motion to vacate the Judgement of Foreclosure and Sale. (2d Am. Compl. (Second document attached to the pleading).) Justice Henry reasoned that pending settlement negotiations between Dolan and Rigole, which could allow Dolan to repurchase the Property from Rigole, might resolve the entire matter and obviate the need to decide the pending motion. ( Id. at 3.) Justice Henry continued:
In the event that negotiations do not resolve the dispute, the record reflects that numerous issues of fact are raised
with regard to the method, manner and the veracity of the lenders' representations to the [Dolans] which require further examination and disclosure. The proceeding appears procedurally in compliance with the foreclosure statute. However the propriety of the two forbearance agreements signed on or about September 24, 2002 and August 11, 2000, the lenders' operating procedures, the acceptance and appropriation of [the Dolans'] substantial payments pending foreclosure and judgment on default between 2001 and 2002, and the similarity of the abuse claimed by the Dolans and those publicized in federal investigation and recently settled between the lender, FTC and HUD in late 2003, raise a basis for inference and issues concerning intent, and the need for scrutiny.
( Id.) In a subsequent Order dated December 6, 2004, Justice Henry noted that the negotiations between Dolan and Rigole " never got off the ground," and referred the matter to an appointed Judicial Hearing Officer for a hearing and determination on " all outstanding issues." (2d Am. Compl., Ex. IV, Doc. 15.)
The foreclosure proceeding was thereafter referred to Judicial Hearing Officer (" JHO" ) Morton I. Willen, who held an evidentiary hearing on February 1 and 14, 2005. (Bhimani Decl., Ex. I at 1.) In a written decision dated April 18, 2005, JHO Willen granted Dolan's motion to set aside the judgment of foreclosure and sale, set aside the sale of the Property to Rigole, excused Dolan's default in the foreclosure action, and permitted him to " interpose an answer and assert whatever defenses [he] deem[ed] appropriate."  ( Id. at 5.) JHO Willen determined that TMS and its servicing agents had " failed to properly credit Dolan in excess of $10,000" in 2001 and 2002 and that " Dolan was injured because of [the] failure to timely apply these payments to principal and interest." ( Id. at 3.) JHO Willen further concluded that " [t]he interest rate of 14.125% was [improperly] frozen [even though] the lending documents require adjustment every six months," and that " [t]his inconsistency in assessing interest rates resulted in inaccurate crediting to the detriment of the borrower." ( Id.)
JHO Willen further concluded that " [e]ach of the [forbearance] agreements contain either egregious mistakes and/or overreaching and unconscionable clauses." ( Id.) JHO Willen found that the September 2002 Forbearance Agreement entered into by FCC and Dolan was " [t]he singular most flagrant of the forbearance agreements" in that it claimed that plaintiff owed $87,567.71 in arrears despite the fact that " there is nothing in the record to support this."  ( Id. at 4.) Moreover, the agreement listed the unpaid principal on the mortgage as $220,853, but JHO Willen found that " [t]he mortgage balance is obviously and substantially incorrect when taking into account the aforementioned failures to credit or timely credit payments which ought to have reduced both principal and interest." ( Id.) Overall, JHO Willen determined that the September 2002 Forbearance Agreement's provisions were " oppressive, overreaching and shock the conscience of the court." ( Id.) He continued:
They present the same and similar predatory lending practices which induced this very same servicing corporation
(Fairbanks) to settle a claim brought against it by the United States Government and agree to pay a fine of forty million dollars ($40,000,000) in 2003. It is apparent . . . that these [forbearance] agreements represent a source of substantial, increased profits over and above the underlying note and mortgage. It is the evils exemplified in this action, which led the FTC and HUD to proceed against [FCC] in the federal action. The huge profits available under the circumstance of borrower default followed by forbearance agreements[ ] suggest a fertile source of revenue, a windfall indeed.
( Id. at 4-5.)
In response to JHO Willen's April 18, 2005 decision, TMS and its then-servicing agent Wilshire " applied the $15,000.00 [down] payment made by DOLAN on or about September 30, 2002 [pursuant to the September 2002 Forbearance Agreement] directly to [the] unpaid principal balance," and took other steps to reduce the outstanding principal balance from $220,852.53 to $206.603.38. ( See Bhimani Decl., Ex. K ¶ ¶ 8 & 9.)
After JHO Willen's decision was issued, Dolan filed a verified answer in the foreclosure action. ( See Pl.'s Sur-Reply (Docket No. 352), Ex. at 1.) In addition to denying the allegations in the complaint, Dolan interposed three counterclaims alleging violations of New York General Business Law § 349, breach of the duty of good faith and fair dealing, and misrepresentation. ( Id.)
The foreclosure action went to trial before New York State Supreme Court Justice Paul J. Baisley, Jr. on April 30, 2010. ( See Pl.'s Sur-Reply, Ex. at 1.) After hearing testimony from Dolan and a representative of TMS's latest servicing agent, GMAC Mortgage, LLC (" GMAC" ), Justice Baisley concluded, in a written order dated July 6, 2012, that TMS's evidence " failed to establish that [Dolan was] in fact in default at the time of the commencement of the instant foreclosure action." ( Id. at 2.) In particular, GMAC's representative testified that " he has no knowledge or information regarding the payment history on the loan, and does not know whether or not the approximately $70,000.00 of payments the Dolans made pursuant to the various forbearance agreements was credited to their account." ( Id.) Thus, Justice Baisley dismissed the foreclosure action with prejudice. ( Id. at 3.)
With respect to Dolan's counterclaims, Justice Baisley concluded that although " it [was] the law of the case that the actions of [TMS] and/or its agents . . . constituted predatory lending practices," Dolan had failed to proffer any admissible evidence that TMS " has engaged in such practices on a widespread basis which affects consumers generally so as to support [Dolan's] claim for violation of General Obligation Law § 349." ( Id. at 3-4.) Justice Baisley also found, however, that Dolan had proffered sufficient evidence to establish his counterclaims for misrepresentation and breach of the duty of good faith and fair dealing. ( Id. at 3.) Overall, the evidence had established to Justice Baisley's satisfaction " that [the Dolans] were thwarted in their efforts to remedy their default and reinstate the mortgage by the predatory lending practices of [TMS] and its servicers." ( Id. at 4.) Invoking its equitable powers, Justice Baisley directed TMS to reinstate the mortgage, " the principal amount of which is determined to be $220,000.00, at the current rate of interest as determined in accordance with the provisions of the note and mortgage." ( Id.) Other than outstanding real estate taxes, " [a]ll other claimed arrears and accrued interest and penalties [were] deemed cancelled." ( Id.)
The First Complaint
On July 7, 2003, plaintiff (and former plaintiff Donna M. Dolan) commenced this action pursuant to the " USA Patriot Act of 2001." By Memorandum and Order dated April 23, 2004, the Court dismissed the Complaint without prejudice and gave Dolan permission to file an Amended Complaint that addressed " the pleading concerns enunciated in this order." (Apr. 23, 2004 Mem. & Order at 2.)
The Amended Complaint
On May 24, 2004, Dolan filed an Amended Complaint that asserted eleven causes of action under the Patriot Act, the Clayton and Sherman Acts, the Fair Credit Reporting Act (" FCRA" ), the Federal Trade Commission Act (the " FTCA" ), the Fair Debt Collection Practices Act (the " FDCPA" ), the Real Estate Settlement and Procedures Act (the " RESPA" ), the RICO statutes, and civil rights laws against FCC and PMI as well as FCC's parent company, FCHC, and Thomas D. Basmajian (" Basmajian" ), an officer of FCC.
The thrust of the Amended Complaint was the FCC committed various acts of fraud on " consumers" generally by, inter alia, deliberately failing to post customers' timely mortgage payments to their accounts in order to collect late fees, charging consumers for homeowners' insurance even though the borrowers already had insurance in place, " force placing" insurance coverage on consumers by intentionally lapsing old coverage so that PMI could issue new policies, engaging in dishonest and abusive tactics to collect debts, and deliberately reporting inaccurate information to credit bureaus.
In January 2005, all four defendants moved to dismiss the Amended Complaint. By Memorandum and Order dated August 16, 2005, the Court: (1) granted the motions by FCHC and Basmajian to dismiss the claims against them in their entirety, (2) granted the motion by PMI to dismiss each of the claims against it except for plaintiff's antitrust claims, (3) granted FCC's motion with respect to each of plaintiff's claims except his RESPA and antitrust claims. Thus, only plaintiff's RESPA claims against FCC and antitrust claims against both FCC and ...