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Wheeler v. Citigroup

United States District Court, S.D. New York

April 8, 2013

ROBERT WHEELER AND JO-ANNA RODRIGUEZ-WHEELER, Plaintiffs,
v.
CITIGROUP, CITIBANK, CITIMORTGAGE 11 Civ. 4721 (KNF) AND CITIFINANCIAL, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, MERSCORP, Defendants. CITIGROUP, CITIBANK, CITIMORTGAGE AND CITIFINANCIAL, MORTGAGE ELECTRONIC REGISTRATION SYSTEM AND MERSCORP, Counter Claimants,

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Robert Wheeler, Plaintiff, Pro se, Bedford, NY.

Jo-Anna Rodriguez-Wheeler, Plaintiff, Pro se, Bedford, NY.

For Citigroup, Citibank, CitiMortgage, Citifinancial, Mortgage Electronic Registration Systems, Merscorp, Inc., Defendants, Counter Claimants: Bennett R. Katz, LEAD ATTORNEY, Katz & Rychik, P.C., New York, NY.

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MEMORANDUM AND ORDER

KEVIN NATHANIEL FOX, UNITED STATES MAGISTRATE JUDGE.

Before the Court is the defendants' motion to dismiss for lack of subject-matter jurisdiction, pursuant to Rule 12(h)(3) of the Federal Rules of Civil Procedure (Docket Entry No. 135). The plaintiffs oppose the motion.

BACKGROUND

On July 8, 2011, the plaintiffs, proceeding pro se, commenced this action for damages against Citigroup, Citibank, CitiMortgage and CitiFinancial (collectively " Citi" ), alleging violations of the: (i) Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq; and (ii) Fair Credit Reporting Act, 15 U.S.C. § 1381 et seq. The plaintiffs also alleged breach of contract, negligence, trespass, larceny and vandalism. On November 8, 2011, the plaintiffs filed their first-amended complaint, asserting: (a) breach of contract; (b) breach of the implied covenant of good faith and fair dealing; (c) promissory estoppel; (d) trespass; (e) larceny; and (f) vandalism. On January 30, 2012, the plaintiffs filed their second-amended complaint, joining Mortgage Electronic Registration Systems (" MERS" ) and MERSCORP as defendants, and asserting the following claims: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) promissory estoppel; (4) violation of New York Real Estate Recording laws; (5) " Attempting to Foreclose without Standing" ; (6) trespass; (7) larceny; and (8) vandalism. On June 1, 2012, the plaintiffs filed their third-amended complaint, asserting the following claims: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) promissory estoppel; (4) trespass; (5) larceny; (6) vandalism; (7) forgery of a mortgage assignment; (8) initiating a foreclosure without standing; (9) violation of New York Real Estate Recording laws; (10) mortgage nullification; (11) " MERS Encourages Servicers to Illegally Retain Notes" ; (12) " MERS® eMortgages and eNotes are Illegal in New York" ; (13) forgery of a promissory note; (14) deceptive acts and unlawful practices; and (15) punitive damages. On September 20, 2012, the parties consented, pursuant to 28 U.S.C. § 636(c),

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to proceed before the undersigned for all purposes.

In their third-amended complaint, the plaintiffs allege that, on March 8, 2007, they entered into a home mortgage loan agreement with CitiMortgage, memorialized by the " Plaintiff's 'wet-ink' signature on the promissory note and the mortgage contract." The plaintiffs assert that CitiMortgage, as a Home Affordable Modification Program (" HAMP" ) participant, entered into a written agreement with them, " known as the Trial Period Plan Agreement ('TPP Agreement')", by which CitiFinancial " agreed to a finite 'trial period,' and promised that compliance with the TPP Agreement would result in the tender of a permanent loan modification required under [HAMP] rules." The plaintiffs contend that they complied with the terms of the trial period plan, by " submitting the required documentation and making the three HAMP trial payments required under the Trial Period Plan." According to the plaintiffs, CitiMortgage advised them to continue making " the reduced payments while they were awaiting the permanent modification documents to be generated through the originator and lender Defendant CitiMortgage as required under their Servicer Participation Agreement [" SPA" ] and HAMP guidelines." The plaintiffs maintain that they continued to make " the reduced HAMP payments directly to the servicer Defendant CitiMortgage on time, as agreed," and " re-submitted the required documentation an additional eight times and made an additional seven payments directly to the servicer while waiting for the permanent modification documentation promised by the servicer, Defendant CitiMortgage." However, the plaintiffs assert, CitiMortgage " failed to meet their contractual obligation to tender a permanent modification," before the plaintiffs " became permanently displaced from the home by a municipal water main break on June 3, 2010."

Thereafter, CitiMortgage commenced a foreclosure action, " as 'assignee' of Defendant Mortgage Electronic Registration Systems." The plaintiffs assert that they " were never served in the electronic foreclosure matter and were only alerted to the invalid assignment by this agent's attempt to 're-assign' their electronic note using a known robo-signer in an effort to perfect the original lean [sic] on the asset." The plaintiffs maintain that the defendants had no authority to commence the foreclosure action, since " they are not the legal owner or the holder of the 'wet-ink' promissory note and 'wet-ink' mortgage instrument physically signed by each of the Plaintiffs Wheeler." According to the plaintiffs, they " were alerted to the dual tracking [of the mortgage loan] by Defendants after discovering on a routine visit to the home there had been a break in and burglary on May 4, 2011 by employees of a fourth sub-contractor for the servicer Defendant CitiMortgage, a third-party 'property preservation' contractor for Defendants MERSCORP, Safeguard Properties." Mortgage Electronic Registration Systems and MERS created " an unregulated and completely opaque electronic mortgage registry, the 'eRegistry', outside the Westchester County recording system purporting to reflect actual mortgage interests." The plaintiffs assert that, as a result, the defendants avoid " all subsequent recording fees and municipal taxes after automatically replacing the 'wet ink' promissory note and the 'wet ink' mortgage instrument for members immediately at closing creating electronic records and data pointers in their place." According to the plaintiffs, the defendants also circumvent " recording statutes" and engage " in an electronic mortgage exchange purporting to trade the so-called 'eNotes' and 'eMortgages' as negotiable bearer instruments." The plaintiffs assert that the assignment by Mortgage Electronic

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Registration Systems is invalid, and " Defendants [sic] CitiMortgage dual tracking of the mortgage loan by negotiating a modification with Plaintiffs while simultaneously generating a 'servicer-driven' default in the background through their loss mitigation unit of servicer Defendant CitiMortgage was deceptive and adversely affected the Wheelers." The plaintiffs maintain that the defendants' actions " collectively thwarted the purpose of [HAMP] and are illegal under New York State law."

In the parties' joint pretrial order, the defendants contended that the plaintiffs do not have a private right of action to assert a violation of HAMP or SPA. The Court directed the plaintiffs to brief the issue whether HAMP provides a private right of action and the defendants to respond (Docket Entry No. 111). The plaintiffs submitted their memorandum of law, contending " it is well established that HAMP does not provide for a private right of action," and that their action is based on violations of Sections 493, 1341, 1343, 513 and 514 of Title 18, United States Code. In their response, the defendants challenged the plaintiffs' assertion of diversity jurisdiction in this action. They also contended that the plaintiffs do not have a " private right of action under federal criminal statutes unless specifically granted by the statute."

On December 21, 2012, the Court directed the plaintiffs to submit evidence establishing that diversity jurisdiction exists and the defendants to submit any countervailing evidence (Docket Entry No. 141). On the same day, the defendants made a motion to dismiss for lack of subject-matter jurisdiction, pursuant to Rule 12(h)(3) of the Federal Rules of Civil Procedure, asserting no diversity jurisdiction exists because several defendants " are also New York citizens" like the plaintiffs, and no federal question jurisdiction exists because HAMP does not provide for a private right of action and none of the plaintiffs' claims arises under federal law. The plaintiffs responded to the motion by a letter, dated December 23, 2012, in which they: (a) state " it is clear that in order to secure subject matter jurisdiction for criminal behavior in a federal civil suit we will require the private right of action afforded us in 18 USC § 1964" ; (b) seek leave to amend the third-amended complaint " to conform [it to] the heightened pleading standard of Fed.R.Civ.P. Rule 9(b) . . . to plead with particularity a chain of causation to establish proximate cause of damages under RICO" (Racketeer Influenced and Corrupt Organizations Act); and (c) " request until January 16, 2013 to file it and ask that Defendants' Motion to Dismiss be dismissed or stayed until Plaintiffs' amended complaint is filed." By a letter, dated December 26, 2012, the defendants opposed the plaintiffs' application for leave to amend the third-amended complaint contending: (i) it is unduly delayed; (ii) the plaintiffs wish to add a new cause of action; (iii) the RICO claim cannot be added as a basis for jurisdiction; and (iv) the defendants will be prejudiced by the amendment. In their reply letter, dated January 29, 2013, the plaintiffs " acknowledge that lack of complete diversity exists among the parties as plead in the Third Amended Complaint" and contend " this pleading defect can be cured in short order by removing all of the Citi Defendants except Citibank, a national association whose mortgage unit also named 'CitiMortgage' was engaged in securitizing the Plaintiff's mortgage loan."

Subsequently, the Court directed the plaintiffs to file a memorandum of law addressing whether: (1) the nondiverse parties are dispensable; and (2) prejudice will attend any party perforce of the dismissal of nondiverse parties. The defendants were directed to file a responsive

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memorandum of law, and the plaintiffs were permitted to file a reply (Docket Entry No. 151). The parties made their respective submissions. The Court considered the parties' submissions related to subject-matter jurisdiction in determining the defendants' motion to dismiss for lack of subject-matter jurisdiction.

DISCUSSION

" If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action." Fed.R.Civ.P. 12(h)(3). " [T]he party asserting subject-matter jurisdiction . . . has the burden of proving its existence by a preponderance of the evidence." Garanti Finansal Kiralama A.S. v. Aqua Marine & Trading Inc., 697 F.3d 59, 65 (2d Cir. 2012). " That party must allege a proper basis for jurisdiction in his pleadings and must support those allegations with 'competent proof' if a party opposing jurisdiction properly challenges those allegations, or if the court sua sponte raises the question." Linardos v. Fortuna, 157 F.3d 945, 947 (2d Cir. 1998) (internal citation omitted). In adjudicating a motion to dismiss for lack of subject-matter jurisdiction, " a district court may consider evidence outside the pleadings." Morrison v. Nat'l Australia Bank Ltd., 547 F.3d 167, 170 (2d Cir. 2008). " The existence of federal jurisdiction ordinarily depends on the facts as they exist when the complaint is filed." Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 830, 109 S.Ct. 2218, 2222, 104 L.Ed.2d 893 (1989). " [W]hen a plaintiff files a complaint in federal court and then voluntarily amends the complaint, courts look to the amended complaint to determine jurisdiction." Rockwell Int'l Corp. v. United States, 549 U.S. 457, 473-74, 127 S.Ct. 1397, 1409, 167 L.Ed.2d 190 (2007).

Federal Question Jurisdiction

" The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. The plaintiffs' third-amended complaint asserts thirteen claims indicated above, including " punitive damages," which is a remedy, not a claim. The only federal law invoked in the complaint is HAMP, the United States Department of the Treasury program codified within the Emergency Economic Stabilization Act of 2008, 12 U.S.C. § § 5201-5261. However, HAMP does not create a private right of action for borrowers against loan servicers. See Miller v. Chase Home Finance, LLC, 677 F.3d 1113, 1116 (11th Cir. 2012) (no express or implied private right of action under HAMP); Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 559 n.4 (7th Cir. 2012) (" HAMP does not create a private federal right of action for borrowers against servicers" and " borrowers were not intended third-party beneficiaries of the SPAs" ); Griffith-Fenton v. Chase Home Finance, No. 11 CV 4877, 2012 WL 2866269, at *3 (S.D.N.Y. May 29, 2012) (" HAMP does not provide a private cause of action, nor may plaintiff enforce the agreement as a third-party-beneficiary." ). Moreover, the plaintiffs concede that HAMP provides no private right of action. See Docket Entry No. 126. Accordingly, the Court finds that HAMP does not ...


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