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Federal Deposit Insurance Corporation v. Horn

United States District Court, E.D. New York

April 8, 2015

FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER FOR AMTRUST BANK, Plaintiff,
v.
GARY A. HORN, ESQ., LEGEND LAND SERVICES, LLC, and NMR ADVANTAGE ABSTRACT, LTD., Defendants.

MEMORANDUM AND ORDER

A. KATHLEEN TOMLINSON, Magistrate Judge.

I. PRELIMINARY STATEMENT

Plaintiff Federal Deposit Insurance Corporation as Receiver for AmTrust Bank ("Plaintiff' or "FDIC") commenced this action against Gary A. Horn, Esq. ("Horn"), Legend Land Services. LLC ("Legend"), and NMR Advantage Abstract. Ltd. ("NMR") (collectively. "Defendants") for breach of contract, breach of fiduciary duty, attorney malpractice, negligent misrepresentation, and negligence. See generally Compl. [DE 1]. Plaintiff seeks to recover losses incurred by AmTrust Bank, F.S.B. ("AmTrust") in connection with six residential mortgage loans for which Horn acted as the closing agent. See id. Horn filed an Answer to the Complaint in which he asserted five affirmative defenses against Plaintiff. See generally Horn Answer [DE 19].

Defendant Horn now seeks leave to amend his Answer, pursuant to Fed.R.Civ.P. 15(a), to assert two new affirmative defenses: (i) lack of standing and lack of capacity to sue; and (ii) failure to mitigate damages. See Motion to Amend/Correct/Supplement. Answer to Complaint [DE 70]; Memorandum of Law in Support of Motion to Amend ("Horn Mem.") [DE 71]. Plaintiff opposes the motion. See Memorandum in Opposition to Motion to Amend ("Pl.'s Opp.") [DE 72]. For the reasons set forth below, Horn's motion to amend his Answer is respectfully DENIED.

II. BACKGROUND

A. Allegations in the Complaint

In September 2008, AmTrust, a federally chartered savings bank, disbursed over $2.3 million dollars to fund six residential mortgage loans (the "Loans"). See Compl. ¶ 1. AmTrust was placed into receivership on December 4, 2009, and the FDIC succeeded to all of AmTrust's claims. Id.; id. at ¶ 8. As receiver, the FDIC is tasked with the obligation to recover losses incurred by AmTrust as a result of its operations, including any losses resulting to AmTrust because of loans AmTrust funded. Id. ¶ 9. The Complaint asserts that the FDIC "owns the subject claims and has standing to prosecute this action as receiver for AmTrust." Id. at ¶ 8. One of the Loans at issue was for a property located at 41 Essex Street in Brooklyn ("41 Essex St. Loan"). See id. ¶ 60.

According to the Complaint, after the Loans closed, AmTrust learned that the Loans involved the use of inaccurate title commitments, unauthorized "flip" transactions.[1] unauthorized disbursements of loan funds, and falsified checks. Id. ¶ 1. AmTrust also learned that the borrowers failed to provide cash at closing as required. Id. The Complaint alleges that the nature of these transactions was concealed from AmTrust at the time the Loans closed. Id. Each of the Loans is in default and went into default shortly after the transactions were closed. Id. ¶ ¶ 7.

Defendant Horn is a licensed attorney who served as AmTrust's "closing agent" for the Loans. See id. ¶¶ 10-11; 18. As closing agent, Horn signed and agreed to be bound by the terms of AmTrust's Master Closing Instructions and Supplemental Closing Instructions (-Closing Instructions"). Id. ¶ 11, Ex. A. The Closing Instructions provided directives concerning, among other things, conditions that must be satisfied before closing on a loan and circumstances which require the closing agent to stop the transaction and contact AmTrust before proceeding. See id. ¶¶ 20-29. The FDIC alleges that, by signing the Closing Instructions and conducting the closings, Horn assumed fiduciary and contractual duties to AmTrust. Id. ¶ 19. According to the Complaint, Horn failed to comply with many of the Closing Instructions' directives when he closed on the Loans, including the 41 Essex Street Loan. See generally id ¶¶ 40-107. Plaintiff alleges that, but for Horn's conduct, AmTrust would not have funded the Loans, "all of which are now in default and severely undersecured." Id. ¶ 111.

The Complaint asserts causes of action for breach of contract, breach of fiduciary duty, attorney malpractice, and negligent misrepresentation against Horn. Id. ¶¶ 108-140 [DE I]. The Complaint also sets out a negligence claim against Legend and NMR, the entities which served as title agents for a number of the Loans. Id. ¶¶ 12-15, 141-154.

B. Horn's Answer

Horn filed an Answer to the Complaint and asserted a cross-claim against Legend and NMR for contractual and common law indemnification. DE 19. In his Answer, Horn asserted five affirmative defenses against the FDIC: (i) statute of limitations; (ii) failure to state a claim; (iii) culpable conduct of Plaintiff and/or AmTrust; (iv) assumption of the risk; and (v) third parties caused the damages alleged by Plaintiff and/or Amtrust. See Horn Answer ¶¶ 155-59.

C. Relevant Procedural history

Plaintiff commenced this action against Defendants on December 3, 2012, [2] and Horn filed his Answer and cross-claim against Legend and NMR on January 24, 2013. Plaintiff and Horn appeared before the Court for an Initial Conference on February 27, 2013. DE 29.[3] As a result of the Conference, the Court issued a Case Management and Scheduling Order ("CMSO") on April 15, 2013, which set forth guidelines concerning any modification of the discovery deadlines as well any amendment of the pleadings. DE 66. The Court advised the parties in its CMSO that these deadlines would "be enforced, and will only be modified upon a timely showing of good cause. Id. at V(a) (emphasis in original). Moreover, the Court explained that "[a] request for an extension of any deadline submitted less than 30 days before that deadline will be considered untimely and will not be granted absent extraordinary circumstances." Id. at V(b). The parties were given until May 29, 2013 to seek leave to join additional parties or amend the pleadings. Id. at I.

On May 17, 2013, Plaintiff served its responses to Horn's first set of interrogatories. See Pl.'s Response to Def.'s First Set of Interrogatory Demands ("Pl.'s Resps."), attached as Ex. B to Pl.'s Opp. [DE 72-2]. Plaintiffs interrogatory responses described who owned each of the Loans and provided information regarding the sales of the Loans. See Pl.'s Resps. ¶¶ 7, 9, 14, 16, 21, 23, 28, 30, 35, 37, 42, 44. With respect to the 41 Essex St. Loan, Plaintiff stated that the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") currently owns that loan, which AmTrust sold prior to its "failure" in December 2009. Id. ¶¶ 21, 23. Plaintiff asserted, however, that the FDIC retains and "owns the tort claims relating to the 41 Essex Street Loan at issue in this case." Id. ¶ 21. Plaintiff further stated that it would provide documentation and additional information relating to the collection, sale, and repurchase of the 41 Essex Street Loan (as well as the other Loans) once it completed an investigation. See id. ¶¶ 21. 23.

The parties appeared before the Court on July 17, 2013 for a Discovery Status Conference. See DE 34. As a result of that conference, the Court adjourned the deadline to complete fact discovery to November 30, 2013, and gave the parties until September 5, 2013 to make a motion to compel or seek any other discovery-related relief. Id. ¶ 1. The Court later granted Horn's application to extend the discovery motion deadline to October 4, 2013. Elec. Order, Sept. 6, 2013.

On October 4, 2013, Horn filed a letter motion to compel Plaintiff to provide documents related to (i) all payments made by the six borrowers of the Loans; (ii) "any mortgage foreclosure action brought as a result of the mortgages"; and (iii) "the sale of any of the mortgaged properties." DE 39. The Court granted Horn's application and directed Plaintiff to provide the outstanding discovery outlined in Horn's letter motion by October 16, 2013. See Elec. Order, Oct. 8, 2013. The Court also adjourned the deadline for the parties to raise discovery-related issues to November 4, 2013. See id. On October 11, 2013, Plaintiff made an application, with Horn's consent, to extend Plaintiffs deadline to provide the outstanding discovery to October 24, 2013. DE 41. The Court granted that application. See Elec. Order, Oct. 15, 2013. Plaintiff ultimately provided[REDACTED/] [REDACTED/] to Horn on November 27, 2013. [REDACTED/]

On November 22, 2013, Horn filed a letter motion seeking to extend the November 30, 2013 fact discovery deadline "for the sole purpose of conducting one final [Rule] 30(b)(6) deposition of [P]laintiff' on December 11, 2013. DE 49 at 1. Horn also requested that the expert discovery schedule be held in abeyance pending a settlement conference before the Court. Id. at 2. The Court modified the CMSO "solely to permit the deposition to go forward on December 11, 2013" and stayed the expert discovery schedule pending a settlement conference. Elec. Order, Nov. 25, 2013.

On December 11, 2013, Horn deposed Jonny Joseph Teal, a "[r]esolution and receivership specialist" for the FDIC. Tr. of the Dec. 11, 2013, 30(b)(6) Dep. of Jonny Teal of FDIC ("Teal Dep. Tr."), attached as Ex. A to the Schleifer Decl., at 5:2-4 [DE 70-1]. During his deposition, Teal discussed the Freddie Mac agreement. See Teal Dep. Tr. at 59:8-60:24. Specifically, Teal testified as follows:

Q. Is the [41 Essex St. Loan] retained by the FDIC?
A. [REDACTED/] and the FDIC retains the rights to that or the claim to that particular loan. I believe it was approximately $440, 000 which had a few payments around ...

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