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McMahon v. PHH Mortgage Corporation

United States District Court, E.D. New York

May 19, 2014


Michael E. Herskowitz, Esq., Michael Andrew Lehrman, Esq., Carmel Maseng, Esq., The Hoffman Law Group, P.A., Brooklyn, NY, for Plaintiffs.

Nathaniel I. Kolodny, Esq., Stillman Friedman & Shechtman, P.C., New York, NY, for Defendant.


JOANNA SEYBERT, District Judge.

Currently pending before the Court are: (1) defendant PHH Mortgage Corporation's ("PHH") motion to sever and to dismiss the Amended Complaint (Docket Entry 33), and (2) PHH's motion to supplement its motion to sever and dismiss (Docket Entry 52). For the following reasons, PHH's motions to sever and to supplement are GRANTED and its motion to dismiss is GRANTED IN PART and DENIED IN PART.


This action was initially commenced on April 17, 2013 by plaintiffs Jennifer Cumia ("Cumia"), Nancy Arroyo ("Arroyo"), Patricia McMahon ("McMahon, " and together with Cumia and Arroyo, "Plaintiffs"), and John Roes 1-100 against defendants PHH; JPMorgan Chase Bank, N.A.; and Popular Community Bank (collectively "Defendants"). On September 23, 2013, Plaintiffs filed an Amended Complaint which names each of the Plaintiffs and Defendants. (See Docket Entry 27.) Since then, however, the parties have voluntarily dismissed all but Arroyo and McMahon as plaintiffs, and PHH as a defendant.[2] (See Docket Entries 32, 40.)

Plaintiffs are homeowners who assert that Defendants committed various "illegal" acts in the creation and servicing of their home mortgage loans. (See generally Am. Compl.) Plaintiffs allege that, during the origination of their loans, Defendants offered terms that Plaintiffs would not have accepted had it not been for Defendants' misrepresentations. (Am. Compl. ¶¶ 29-30.) Moreover, Defendants did not require sufficient financial documentation, and ultimately provided mortgages unsuitable to Plaintiffs' incomes. (Am. Compl. ¶¶ 31, 33.)

Ultimately, Plaintiffs defaulted on their mortgage payments and requested loan modifications through Defendants. (Am. Compl. ¶¶ 2-3.) Defendants provided Plaintiffs with application materials for a modification. (Am. Compl. ¶ 4.) They represented to Plaintiffs that after completion of the materials, Plaintiffs would be provided terms to make payments under a "trial modification." (Am. Compl. ¶ 5.) If Plaintiffs made those payments, there would be a permanent modification. (Am. Compl. ¶ 5.)

Plaintiffs allege that they accepted Defendant's loan modification offers and began performance, thus forming a contract. (Am. Compl. ¶ 7.) Specifically, the Amended Complaint asserts that "Plaintiffs either provided all of the requested documentation in support of their loan modification application to Defendants, and otherwise met all the conditions precedent pursuant to a trial modification offer, or attempted to do so in good faith, but faced substantial interference from Defendants." (Am. Compl. ¶ 8.) For example, Arroyo submitted documentation to PHH in support of her application, but was informed that her application was incomplete. Arroyo submitted the materials again, but PHH again denied her application as incomplete. (Am. Compl. ¶ 10.) According to Plaintiffs, these "missing document requests" were in actuality a policy instituted by Defendants to "overly burden Plaintiffs' compliance with modification terms." (Am. Compl. ¶ 11.)

In addition, Plaintiffs allege that they were denied trial modifications on baseless claims regarding financial status. (Am. Compl. ¶ 12.) In April 2013, for example, PHH denied Arroyo a loan modification on the grounds of insufficient income. (Am. Compl. ¶ 12.) "In cases where trial modification was not given, Defendants either gave no explanation for the denial, or alleged that Plaintiffs did not provide the necessary documentation for processing or review, as was the case with Plaintiff Nancy Arroyo." (Am. Compl. ¶ 13.) Plaintiffs allege that Defendants had a financial incentive to encourage foreclosure or short sale, rather than loan modification. (Am. Compl. ¶¶ 14-16.)

Furthermore, under the Home Affordable Modification Program ("HAMP") lenders must conduct a Net Present Value ("NPV") calculation of the property as modified and unmodified. (Am. Compl. ¶ 19.) "When a modification has an NPV equal to, or greater than, the amount likely to be obtained from sale in foreclosure, lenders must offer a modification. However, Defendants' CDS/CDO ["Credit Debt Swap" and "Collateralized Debt Obligations"] create a financial offset beyond the amount that could reasonably be obtained through sale in foreclosure." (Am. Compl. ¶ 19.) Thus, Defendants have "created an alarming conflict of interest as part of their loss-sharing agreements in the securitization of mortgages, incentivizing them to negotiate with the Plaintiffs in bad faith." (Am. Compl. ¶ 16.) Moreover, Defendants do not set specific standards for determining who will be granted loan modifications. (Am. Compl. ¶ 21.)

Plaintiffs assert the following causes of action: (1) Count One: Breach of Contract; (2) Count Two: Breach of the Implied Covenant of Good Faith and Fair Dealing; (3) Count Three: Fraudulent Concealment; (4) Count Four: Fraud for Demanding and Collecting Monthly Note Payments under False Pretenses; (5) Count Five: Violations of Section 349 of the New York General Business Law ("GBL"); (6) Count Six: Violations of the Federal Truth in Lending Act ("TILA"); (7) Count Seven: Fraud in the Inducement; and (8) Count Eight: Violations of the Real Estate Settlement Procedures Act ("RESPA").


PHH now moves to sever Plaintiffs Arroyo and McMahon and to dismiss the Amended Complaint. The Court will first address the issue of severance before turning to PHH's motion to dismiss.

I. Severance

A. Federal Rule of Civil Procedure 20

1. Legal Standard

Rule 20(a)(1) permits the joinder of multiple plaintiffs in an action if: "(A) they assert any right to relief jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences; and (B) any question of law or fact common to all plaintiffs will arise in the action." FED. R. CIV. P. 20(a)(1). These elements are preconditions and both must be met for joinder to be proper. Deskovic v. City of Peekskill, 673 F.Supp.2d 154, 159 (S.D.N.Y. 2009) ("As is clear from the plain language of [the Rule], both criteria must be met for joinder to be proper."). While "[t]he requirements of Fed.R.Civ.P. 20(a) are to be interpreted liberally to enable the court to promote judicial economy by permitting all reasonably related claims for relief by or against different parties to be tried in a single proceeding, the requirements of the rule still must be met and constrain the Court's discretion." Kalie v. Bank of Am. Corp., ___ F.R.D. ___, 2013 WL 4044951, at *3 (S.D.N.Y. Aug. 9, 2013) (alteration in original) (internal quotation marks and citation omitted). "If a court concludes that [parties] have been improperly joined under Rule 20, it has broad discretion under Rule 21 to sever [those] parties... from the action." Id.

In determining whether claims arise out of the same "transaction" or "occurrence" under Rule 20(a), "courts are to look to the logical relationship between the claims and determine whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit.'" Id . (quoting United States v. Aquavella, 615 F.2d 12, 22 (2d Cir. 1979)). Plaintiffs bear the burden of demonstrating that joinder is proper under Rule 20(a). Deskovic, 673 F.Supp.2d at 159.

2. Application

Here, PHH asserts that Arroyo's and McMahon's respective claims do not arise out of the same transaction or occurrence. (See PHH's Br., Docket Entry 34, at 4-7.) Arroyo and McMahon raise several arguments in opposition, primarily asserting that PHH has cited cases involving only mortgage loan origination, not mortgage loan modification and that because only PHH now remains as a defendant, "Plaintiffs' relationship with PHH is not contested."[3] (Pl.'s Opp. Br., Docket Entry 44, at 4.)

Arroyo and McMahon's arguments in opposition are unavailing.[4] In fact, after Arroyo and McMahon filed their opposition, but before the instant Memorandum and Order, the undersigned issued an Order severing the plaintiffs in an action involving claims regarding mortgage loan modification and the same Plaintiffs' counsel. See generally D'Angelis v. Bank of Am., N.A., No. 13-CV-5472, 2014 WL 202567 (E.D.N.Y. Jan. 16, 2014). There, as here, the Court notes that it is well-settled that separate loan transactions are separate "transactions or occurrences" and generally are not sufficiently related to constitute a "series of transactions or occurrences" within the meaning of Rule 20(a)(1). See id. at *2 (collecting cases). Moreover, even claims asserted by separate plaintiffs against a common defendant do not arise out of the same "transaction" or "occurrence." See id. at *2 (quoting Kalie, 2013 WL 4044951, at *4).

The Court takes this opportunity to note that several courts across this District have ordered severance in similar actions-and rejected similar arguments in opposition-involving Plaintiffs' counsel. See, e.g., Martin v. Bank of Am., No. 13-CV-2350, 2014 WL 977653 (E.D.N.Y. Mar. 12, 2014); Green v. Citimortgage, Inc., No. 13-CV-2341, 2013 WL 6712482 (E.D.N.Y. Dec. 18, 2013)[5]; Traina v. HSBC Mortg. Servs., Inc., No. 13-CV-2336, 2013 WL 6576856 (E.D.N.Y. Dec. 12, 2013). Accordingly, the claims of McMahon are SEVERED pursuant to Rule 20 and DISMISSED WITHOUT PREJUDICE to commencing a separate action.

B. Federal Rule of Civil Procedure 21

Finally, even if Arroyo and McMahon satisfied Rule 20(a), the Court would reach the same result in exercising its discretion under Rule 21 of the Federal Rules of Civil Procedure. Rule 21 provides, in relevant part, that "[o]n motion or on its own, the court may at any time, on just terms, add or drop a party... [and] sever any claim against any party." FED. R. CIV. P. 21.

In deciding whether to sever a claim under Rule 21, courts generally consider, in addition to the preconditions set forth in Rule 20(a), "[1] whether settlement of the claims or judicial economy would be facilitated; [2] whether prejudice would be avoided if severance were granted; and [3] whether different witnesses and documentary proof are required for the separate claims." Crown Cork & Seal Co., Inc. Master Retirement Trust v. Credit Suisse First Boston Corp., 288 F.R.D. 331, 333 (S.D.N.Y. 2013) (quoting Erausquin v. Notz, Stucki Mgmt. (Bermuda) Ltd., 806 F.Supp.2d 712, 720 (S.D.N.Y. 2011)). "A court should consider whether severance will serve the ends of justice and further the prompt and efficient disposition of litigation.'" Crown Cork, 288 F.R.D. at 332 (quoting T.S.I. 27, Inc. v. Berman Enters., Inc., 115 F.R.D. 252, 254 (S.D.N.Y. 1987)); see also In re Ski Train Fire in Kaprun, Austria, on November 11, 2004, 224 F.R.D. 543, 546 (S.D.N.Y. 2004).

Here, Arroyo and McMahon's individual claims will require distinct witnesses and documentary proof. Kalie, 2013 WL 4044951, at *6 (finding that judicial economy was not served by joining mortgage-related claims because "each plaintiff's claims implicate distinct loans, locations, dates and personnel"). Furthermore, settlement of the claims is likely to be facilitated if the claims relating to separate mortgage transactions are litigated separately. See Adams, 2013 WL 5437060, at *4. In addition, "[a] joint trial could lead to confusion of the jury and thereby prejudice defendants." Kalie, 2013 WL 4044951, at * 6 (internal citation and ...

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