United States District Court, S.D. New York
Tomas Espinosa, Esq North Bergen, N.J. Counsel for Plaintiffs.
Christine B. Cesare Bryan Cave LLP (NY) New York, NY Nafiz Cekirge Four Times Square New York, NY Scott Harris Kaiser Bryan Cave LLP (NY) New York, NY Bernard J. Garbutt, III Morgan, Lewis and Bockius LLP (NY) New York, NY Christopher J Mannion Morgan, Lewis & Bockius LLP Philadephia, PA Thomas James Sullivan, Jr. Morgan Lewis & Bockius, LLP (PA) Philadelphia, PA Allison J Schoenthal Hogan Lovells U.S. LLP (NYC) New York, NY Patrick Joseph Dempsey Hogan Lovells U.S. LLP (NYC) New York, NY Brian S McGrath Hogan Lovells U.S. LLP (NYC) New York, NY Lisa Jean Fried Hogan Lovells U.S. LLP (NYC) New York, NY Christopher George Karagheuzoff Dorsey & Whitney LLP New York, NY Eric R. Sherman Dorsey & Whitney, LLP (MN) Minneapolis, MN
OPINION & ORDER
ROBERT P. PATTERSON, Jr., District Judge.
On April 15, 2013, an Amended Complaint was filed by thirty-eight individuals and one limited liability company-(collectively, the "Plaintiffs")-against trustees Bank of New York (now known as Bank of New York Mellon), Deutsche Bank National Trust Company, HSBC Bank USA National Association, U.S. Bank National Association, and Wells Fargo Bank National Association (the "Trustee Defendants"), as well as thirty-seven separate trusts (the "Trust Defendants") (collectively, the "Defendants"). (Am. Compl. ¶¶ 1-4.)
In their Amended Complaint, the Plaintiffs allege that the Defendants violated the Federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962, and that they conspired to violate Federal RICO, 18 U.S.C. § 1962(d). (Id. ¶¶ 35-54.) Finally, the Plaintiffs seek to enjoin the Defendants from foreclosing on any of the properties of Plaintiffs in this pending action. (Id. ¶¶ 55-59.)
On August 2, 2013, the Trustee Defendants filed a joint motion to dismiss the Amended Complaint, or, in the alternative, to sever the Plaintiffs. (Defs.' Mem. of Law in Supp. of Joint Mot. to Dismiss the Compl. or to Sever Pls. ("Defs.' Mot."), ECF No. 40.) This motion was filed by the Trustee Defendants on their own behalves and on behalf of the Trust Defendants. (Id. at 3.) On September 5, 2013, the Plaintiffs opposed the motion to dismiss. (Pls.' Br. in Opp'n to Defs.' Mot. ("Pls.' Opp'n"), ECF No. 45.) The Trustee Defendants filed a reply on October 7, 2013. (Reply Mem. of Law in Supp. of Joint Mot. to Dismiss or to Sever ("Defs.' Reply"), ECF No. 48.) Oral argument was held on this motion on November 5, 2013. (Tr. of Nov. 5, 2013 Hr'g ("Tr. 11/5/13").)
The Plaintiffs are thirty-eight individuals and one limited liability company who own or owned residential real properties that have been the subject of foreclosure proceedings. (Am. Compl. ¶ 1.) The Plaintiffs mortgaged their properties at varying times between 2004 and 2007. ( Id., Ex. 1.) The Trustee Defendants are trustees of residential mortgage-backed securities ("RMBS") trusts created under New York law for the purpose of pooling residential mortgage loans, including the Plaintiffs' mortgage loans, and issuing residential mortgage-backed securities to investors. (Defs.' Mot. at 2.) The Plaintiffs' mortgages were pooled and securitized at varying times between 2005 and 2007. (Am. Compl., Ex. 1.) The Trust Defendants are the RMBS trusts in which Plaintiffs allege that their mortgage loans are held. (Id. ¶¶ 2, 5.)
Each of the Plaintiffs' RMBS trusts was formed pursuant to a Pooling Service Agreement ("PSA"), which is a contract that governs a RMBS trust. (Id. ¶ 5.) Generally, parties to a PSA include a "depositor", who conveys the loans to the RMBS trustee in return for the certificates, the RMBS trustee (here, the Trustee Defendants), who owns and holds mortgage loans in trust for investors who buy certificates backed by the pooled mortgage loans, and a "servicer", who sees to administrative tasks involving the individual mortgage loans, such as monthly payment collection and, in cases of default, foreclosure. (Defs.'s Mot. at 3 (citing Trust for the Certificate Holders of the Merrill Lynch Pass-Through Certificates, Series 1999- C1 v. Love Funding Corp. , 556 F.3d 100, 104-05 (2d Cir. 2009) (describing the role of the PSA in the mortgage securitization process)).) A PSA governs the creation of the trust, the date of closing the trust, the date of the trust's formation, and what trustee actions are valid and invalid under the trust. (Am. Compl. ¶ 17.) In particular, each PSA provides for delivery of trust assets (consisting principally of promissory notes and mortgages) to the trustee in a particular manner on or before a specified closing date. (Id. ¶18.)
The parties agree that the PSAs follow a general template, and, at the Court's request, the Plaintiffs submitted a representative PSA, the PSA of Plaintiff Elaine D. Phan. (Pls.' Letter of Nov. 6, 2013 ("Pls.' 11/6/13 Letter"), Ex. 3.) Section 2.01 of that PSA provides for the delivery of "the Mortgage File for each Mortgage Loan listed in the Mortgage Loan Schedule" within thirty days of the closing date of May 27, 2005. (Pls.' 11/6/13 Letter Ex.3, at I-6, I-31.) Section 2.02 provides that the Trustee will deliver a certification form by the closing date, certifying its acceptance of the Mortgage Files, to the Depositor, the Master Servicer, and Countrywide, the seller of the Countrywide Mortgage Loans to the Depositor. (Id. at I-7, II-5.)
The Plaintiffs' Amended Complaint alleges that the Defendants breached the PSAs, and that these breaches prevented the Trustee Defendants from acquiring ownership of the Plaintiffs' mortgage loans. Specifically, the Amended Complaint alleges that, in violation of Sections 2.01 and 2.02 of the PSAs, "[t]he delivery of the trust funds to each defendant...was never completed on the date of closing or at any other date permitted under the PSA." (Am. Compl. ¶¶ 18, 20.) The Plaintiffs also assert that other "conditions for acquisition of the loan by the trust, " prescribed by the PSAs, were never met by the Defendants. (Id. ¶ 31.)
The Plaintiffs allege that the Defendants "each knew that each of them did not own" the Plaintiffs' mortgage loans and knew that they "never had standing to enforce the loans." (Id. ¶ 21.) The Defendants "fraudulently represented that the conditions [required by the PSA for the Defendants to acquire ownership of the mortgage loans] were met and/or concealed the fact that they were not met, " (id. ¶ 31), and that based on these fraudulent representations, the Defendants "collected from the Plaintiffs payment of the mortgage[s] and enforced the mortgage payments, wrongfully foreclosing on the corresponding listed Plaintiffs or sought to foreclose on their properties." (Id. ¶ 14.)
In doing so, the Defendants acted in concert "among themselves and with other[s] such as the servicers of the loans, [and] the [D]efendants' attorneys who sought to enforce the loans." (Id. ¶ 34.) The Defendants "have known of the systematic violations, exemplif[ied] above for years, and in like manner had engaged in this pattern of racketeering for years." (Id.)
The Plaintiffs allege that the Defendants' wrongful collection efforts constitute violations of Federal RICO, 18 U.S.C. § 1962, and that the Defendants conspired to violate Federal RICO, 18 U.S.C. § 1962(d); and, finally, the Plaintiffs demand that the Defendants be enjoined from foreclosing ...