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Federal Deposit Insurance Corporation v. Hodge

United States District Court, E.D. New York

September 26, 2014

FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER FOR AMTRUST BANK, Plaintiff,
v.
MICHAEL HODGE, et al., Defendants

Order Filed: August 22, 2014

Page 328

For FDIC, Plaintiff: James L. DeFeo, PRO HAC VICE, Thompson Hine LLP, Cleveland, OH; William W. Jacobs, Thompson Hine LLP, Cleveland, OH.

Judy Calliste, Defendant, Pro se, Hackensack, NJ.

For Lea Jordan, Defendant: Diana Lozada Ruiz, LEAD ATTORNEY, Law Office of Diana Lozada Ruiz, Esq., Mineola, NY.

George R. Alderdice, Defendant, Pro se, Levittown, NY.

Thomas Griffin, Defendant, Pro se, Bronx, NY.

For Legend Land Services, LLC, Defendant: William Joseph Smith, LEAD ATTORNEY, Faust Goetz Schenker, New York, NY.

For Morningstar Abstract, LLC, Defendant: Natalia Garcia, LEAD ATTORNEY, Landman Corsi Ballaine & Ford PC, Newark, NJ.

For Atlas Abstract Agency Corp., Defendant: Mark Lewis Housman, LEAD ATTORNEY, Brian J. Divney, Housman & Associates, P.C., Tarrytown, NY; LaFleur Alicia David, LaFleur A. David, Esq., Brooklyn, NY.

For Liberty Land Abstract, Inc., Defendant: Perry Ian Tischler, Bayside, NY.

For Morningstar Abstract, LLC, Cross Claimant: Natalia Garcia, LEAD ATTORNEY, Landman Corsi Ballaine & Ford PC, Newark, NJ; Alla Morginshteren, Law Office of Alla Morginshteren, Brooklyn, NY.

For Morningstar Abstract, LLC, Cross Defendant: Natalia Garcia, LEAD ATTORNEY, Landman Corsi Ballaine & Ford PC, Newark, NJ; Alla Morginshteren, Law Office of Alla Morginshteren, Brooklyn, NY.

For James G. Carroll, Cross Defendant: Sinan Aydiner, Furman Kornfeld & Brennan LLP, New York, NY; Younie Choi, Furman Kornfeld & Brennan LLP, New York, NY.

For Law Office of James G. Carroll, P.C., Cross Defendant: Sinan Aydiner, Furman Kornfeld & Brennan LLP, New York, NY; Younie Choi, Furman Kornfeld & Brennan LLP, New York, NY.

For Liberty Land Abstract, Inc., Cross Defendant: Perry Ian Tischler, Bayside, NY.

Devon McDowell, Cross Defendant, Pro se, Jamaica, NY.

For James G. Carroll, Cross Claimant: Sinan Aydiner, Furman Kornfeld & Brennan LLP, New York, NY; Younie Choi, Furman Kornfeld & Brennan LLP, New York, NY.

For Law Office of James G. Carroll, P.C., Cross Claimant: Sinan Aydiner, Furman Kornfeld & Brennan LLP, New York, NY; Younie Choi, Furman Kornfeld & Brennan LLP, New York, NY.

For Atlas Abstract Agency Corp., Cross Claimant: LaFleur Alicia David, LaFleur A. David, Esq., Brooklyn, NY.

For Atlas Abstract Agency Corp., Cross Defendant: LaFleur Alicia David, LaFleur A. David, Esq., Brooklyn, NY.

For George R. Alderdice, Cross Claimant: William Joseph Smith, LEAD ATTORNEY, Faust Goetz Schenker, New York, NY.

For Legend Land Services, LLC, Cross Claimant: William Joseph Smith, LEAD ATTORNEY, Faust Goetz Schenker, New York, NY.

For Lea Jordan, Cross Claimant: Diana Lozada Ruiz, LEAD ATTORNEY, Law Office of Diana Lozada Ruiz, Esq., Mineola, NY.

For George R. Alderdice, Cross Defendant: William Joseph Smith, LEAD ATTORNEY, Faust Goetz Schenker, New York, NY.

For Atlas Abstract Agency Corp., Cross Defendant: Mark Lewis Housman, LEAD ATTORNEY, Housman & Associates, P.C., Tarrytown, NY.

For James G. Carroll, Cross Defendant: Andrew Robert Jones, LEAD ATTORNEY, New York, NY; Izabell Lemkhen, LEAD ATTORNEY, Furman Komfeld & Brennan LLP, New York, NY; Younie Choi, Furman Kornfeld & Brennan LLP, New York, NY.

For Law Office of James G. Carroll, P.C., Cross Defendant: Izabell Lemkhen, LEAD ATTORNEY, Furman Komfeld & Brennan LLP, New York, NY; Younie Choi, Furman Kornfeld & Brennan LLP, New York, NY.

For Legend Land Services, LLC, Cross Defendant: William Joseph Smith, LEAD ATTORNEY, Faust Goetz Schenker, New York, NY.

For Morningstar Abstract, LLC, Cross Defendant: Natalia Garcia, LEAD ATTORNEY, Landman Corsi Ballaine & Ford PC, Newark, NJ.

For Morningstar Abstract, LLC, Cross Claimant: Natalia Garcia, LEAD ATTORNEY, Landman Corsi Ballaine & Ford PC, Newark, NJ.

For Lea Jordan, Cross Defendant: Diana Lozada Ruiz, LEAD ATTORNEY, Law Office of Diana Lozada Ruiz, Esq., Mineola, NY.

For Law Office of James G. Carroll, P.C., Cross Defendant: Izabell Lemkhen, LEAD ATTORNEY, Furman Komfeld & Brennan LLP, New York, NY; Andrew Robert Jones, New York, NY; Younie Choi, Furman Kornfeld & Brennan LLP, New York, NY.

For Liberty Land Abstract, Inc., Cross Claimant: Perry Ian Tischler, Bayside, NY.

For FDIC, Cross Defendant: James L. DeFeo, Thompson Hine LLP, Cleveland, OH.

For Federal Deposit Insurance Corporation, Cross Defendant: Frank R. DeSantis, Thompson Hine LLP, Cleveland, OH; James L. DeFeo, Thompson Hine LLP, Cleveland, OH; Joseph W Muccia, Thompson Hine LLP, New York, NY; Laura L. Watson, Thompson Hine LLP, Cleveland, OH; Thomas L. Feher, Thompson Hine LLP, Cleveland, OH; William W. Jacobs, Thompson Hine LLP, Cleveland, OH.

For Atlas Abstract Agency Corp., Cross Claimant: Mark Lewis Housman, LEAD ATTORNEY, Brian J. Divney, Housman & Associates, P.C., Tarrytown, NY.

For Legend Land Services, LLC, Cross Claimant: Nicholas John Marino, Faust Goetz Schenker & Blee, New York, NY.

For Legend Land Services, LLC, Cross Defendant: Nicholas John Marino, Faust Goetz Schenker & Blee, New York, NY.

For Atlas Abstract Agency Corp., Cross Defendant: Mark Lewis Housman, LEAD ATTORNEY, Brian J. Divney, Housman & Associates, P.C., Tarrytown, NY.

Page 329

MEMORANDUM & ORDER

MARGO K. BRODIE, United States District Judge.

AmTrust Bank (" AmTrust" ) filed a Complaint on July 28, 2009, against Defendant Lea Jordan and others. (Docket Entry No. 1.) On January 7, 2010, the Federal Deposit Insurance Corporation

Page 330

(" FDIC" ), as Receiver for AmTrust Bank, was substituted as Plaintiff. (January 7, 2010 Order.) On July 31, 2012, and August 6, 2012, Plaintiff filed an Amended Complaint and a corrected Amended Complaint, respectively against several persons and organizations, including Defendants Liberty Land, Abstract, Inc. (" Liberty" ) and Atlas Abstract Agency Corp. (" Atlas" ), alleging that Defendants deprived Plaintiff of millions of dollars in proceeds from AmTrust's loans. (Docket Entry Nos. 210-11.) Specifically, as to Atlas, Plaintiff asserts claims of breach of contract, breach of fiduciary duty, negligence, fraud and conspiracy to commit fraud. As to Liberty, Plaintiff asserts claims of negligence, fraud and conspiracy to commit fraud. Discovery closed on February 21, 2013. (See Minute Entry dated February 21, 2013.) Atlas moved for summary judgment on all claims against it. Plaintiff and Liberty cross-moved for summary judgment on all claims against Liberty. The motions for summary judgment were referred to Magistrate Judge James Orenstein for a report and recommendation.

By Report and Recommendation (" R& R" ) dated August 22, 2014, Judge Orenstein recommended that the Court: (1) grant Atlas' motion for summary judgment as to the claims of breach of contract, breach of fiduciary duty, negligent supervision, and negligence involving the Hempstead property; (2) deny Atlas' motion for summary judgment as to the claims of negligence involving the Willoughby Avenue and Jackson Heights properties, fraud and conspiracy to commit fraud; and (3) deny Liberty's and Plaintiff's cross-motions for summary judgment on all claims against Liberty. (Docket Entry (" DE" ) 294.) On September 12, 2014 Atlas filed objections.[1] (DE 296.) No other objections were filed. For the reasons set forth below, the Court adopts the R& R in its entirety.

I. Background

a. Relevant Parties

Between October 28, 2008, and February 12, 2009, AmTrust made twenty home mortgage loans to borrowers based in New York. (Compl. ¶ 4; DE 276 ¶ 1; DE 281.1 ¶ 1.)[2] AmTrust was closed by the Office of Thrift Supervision on December 4, 2009. (DE 276 ¶ 2; 281.1 ¶ 2.) FDIC was appointed as AmTrust's receiver and FDIC was substituted as Plaintiff in this action by Order dated January 7, 2010. (Jan. 7, 2010 Order.)

Link One Mortgage Bankers, LLC (" Link One" ) is a mortgage broker incorporated under the law of New York. (Compl. ¶ 32.) AmTrust contracted with Link One to provide brokerage services and Link One brokered each of the subject loans. ( Id. ¶ ¶ 33-34.) James G. Carroll represented AmTrust with respect to each of the subject loans. ( Id. ¶ 38.)

Atlas is a New York company and acted as title agent in three of the subject loans. (DE 276 ¶ 6; DE 281.1 ¶ 6.) Liberty is a New York company and acted as a title agent with respect to two of the subject loans. (DE 287.8 at 1; DE 282.2 ¶ 1.) As

Page 331

title agents, Atlas and Liberty issued title commitments, which set forth, inter alia, the identity of the current vested owner of the property in question and the source of the vested owner's title.

b. Defendants' alleged scheme

Plaintiff alleges that Defendants have " engaged in or enabled" a mortgage fraud scheme in which " straw" borrowers applied to AmTrust Bank for loans. (Am. Compl. ¶ 1.) The borrowers purported that these loans were wanted in order to purchase residential properties from certain sellers at a fair value. ( Id. ¶ 4.) However, at the time borrowers applied for the loans, and sometimes at the property closings, the alleged sellers did not actually own the subject properties. ( Id. ¶ 6.) When an AmTrust loan closed, the alleged sellers would arrange to purchase the properties from the actual owners for a fraction of the price represented to AmTrust. ( Id. ¶ 10.) The property would then be " flipped" and deeded to the borrower. ( Id.) Pursuant to this scheme, Defendants successfully funded the purchase of property and absconded with hundreds of thousands of dollars in loan proceeds. ( Id. ¶ 11.)

As succinctly stated in the R& R, " [t]he gravamen of [Plaintiff]'s claims against the title agent defendants, including Atlas and Liberty, is that they acted negligently or fraudulently with respect to the issuance of pre-closing title commitments that contained inaccurate or incomplete information regarding the title history of the subject properties." (R& R 2.) According to AmTrust, it relied on these title commitments in order to ensure compliance with its seasoning requirement, which " required that title to the property be vested in the seller for at least three months . . . ." (Brennan Aff. ¶ 5.)

c. The Atlas Loans

Atlas was involved in three subject loans. (DE 276 ¶ 6; DE 281.1 ¶ 6.) Specifically, Atlas was involved in loans pertaining to the following borrowers and properties: (1) Waltnel Sosa and 485 Willoughby Avenue, Brooklyn, New York (" Willoughby Avenue property" ); (2) Kamrun Nahar and 35-16 87th Avenue, Jackson Heights, New York (" Jackson Heights property" ); and (3) Lea Jordan and 140 Weir Street Hempstead, New York (" Hempstead property" ). (DE 276 ¶ 7; DE 281.1 ¶ 7.) Originally, Morning Star Abstract, LLC (" Morningstar" ) was meant to be the title agent at the closing of the three loans. (DE 276 ¶ 10; DE 281.1 ¶ 10.) Atlas' title insurer, Security Title Guaranty Company of Baltimore (" Security" ) was also the title insurer for Morningstar. (DE 276 ¶ 10; DE 281.1 ¶ 10.) After Morningstar ceased operations, an attorney for Security, John Montinico, asked Felice McMahon, the sole owner of Atlas, to " take over" Morningstar's files. (DE 276 ¶ ¶ 9-10; DE 281.1 ¶ ¶ 9-10.) Montinico brought Atlas the files and directed Atlas to use Michelle Baker as the title closer, given her familiarity with the files. (DE 276 ¶ 10; DE 281.1 ¶ 10.) Baker attended the closings of all three loans, acting as the title closer on behalf of Atlas. (DE 276 ¶ 12; DE 281.1 ¶ 12.)

i. Willoughby Avenue property

Atlas prepared a title commitment for the Willoughby Avenue property. (Deposition of Felice McMahon (" Atlas Dep." ), annexed to the Affidavit of Felice McMahon (" McMahon Aff." ) as Ex. A, 90:10-12.) There are two " Schedule A" forms in the record.[3] One Schedule A (" First Schedule

Page 332

A" ) represents that effective January 11, 2009, Brooklyn Renaissance & Development, Inc. (" BRD" ) acquired the Willoughby Avenue property by deed, dated September 25, 2008, from UBS Real Estate Securities, Inc. (" UBS" ). (Atlas Dep. 123:2-23; Ex. 1, annexed to the Affidavit of Melanie Burke (" Burke Aff." ).) The First Schedule A was incorrect. The second Schedule A form (" Second Schedule A" ) represents that effective January 11, 2009, UBS acquired the Willoughby Avenue property by deed dated April 15, 2008, from U.B. Bank National Association.[4] (Ex. C, annexed to McMahon Aff.)

On February 2, 2009, when the Willoughby Avenue property loan closed, BRD did not actually own the Willoughby Avenue property as purported by the First Schedule A. Instead, UBS was the owner of the Willoughby Avenue Property and a deed, obtained from the Automated City Register System (" ACRIS" ), shows that on February 25, 2009, UBS transferred the property to U.S. Bank National Association in a trustee capacity. (Ex. A-2, annexed to the Affidavit of James Defeo (" Defeo Aff." ).) Another deed recorded that same day transferred the Willoughby Avenue property from U.S. Bank to BRD. (Ex. A-3, annexed to Defeo Aff.)

ii. Jackson Heights property

Morningstar prepared the title commitment for the Jackson Heights property and subsequently provided the title commitment to AmTrust.[5] Morningstar's Schedule A represents that effective January 10, 2009, Bangladesh American Trading, Inc. (" Bangladesh" ) acquired the property by deed, dated August 21, 2008, from Bashir Rahman. (Burke Aff. ¶ ¶ 11-12 Ex. 6.) Morningstar's title also indicates that Bashir Rahman acquired the property by deed, dated February 21, 2006, from Nicholas Montes and Ines Montes. ( Id.) Morningstar's title commitment was inaccurate. Atlas' Schedule A for the Jackson Heights property represents that effective January 28, 2009, Bashir Rahman acquired the property by deed, dated February 21, 2006, from Nicholas Montes and Ines Montes. (Defeo Aff. Ex. G.) The deed ...


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