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Barker v. Rokosz

United States District Court, E.D. New York

January 2, 2020

CARLA BARKER, Plaintiff,
IZIA ROKOSZ, JANELLE DEFREITAS, STEVEN G. LEGUM, FRANK RICHARD HURLEY, GREGG TELSEY, ROBERT FISHBEIN, BETTY J. HINGLE, ROYCE LLC, JACKIE MARKETING LLC, LOCKDECO A/K/A LODECO, “JOHN DOE #1” though “JOHN DOE #100, ” said names being fictitious and unknown, the parties intended being persons or corporations, if any, having participated in the enterprise described in the complaint, Defendants.



         This case arises from an alleged equity-stripping scheme whereby defendants misled the plaintiff and induced her to transfer the equity in her home to a separate corporation while encumbering her home with two mortgage loans totalling $450, 000. (ECF No. 1, Complaint (“Compl.”), ¶ 1.) As a result of defendants' actions, plaintiff claims she was exposed to the risk of losing the home she has lived in for more than three decades. (Id.)

         Plaintiff commenced this action on January 25, 2019, alleging that defendants committed violations of federal and New York state lending laws. (Compl. ¶¶ 126-191.) The complaint's fifth and sixth causes of action allege defendants violated New York's Deceptive Practices Act, N.Y. Gen. Bus. Law § 349 (“Section 349”), and the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), respectively. (Id. ¶¶ 192-219.) Before the court are motions to dismiss plaintiff's Section 349 and RICO claims.

         Defendant Steven Legum (“Legum”), proceeding pro se, filed his motion to dismiss Counts Five and Six of the complaint on August 1, 2019. (See ECF No. 76-18, Defendant Steven G. Legum's Memorandum of Law (“Legum Mot.”).) Defendant Izia Rokosz also moved to dismiss plaintiff's Section 349 and RICO claims on June 7, 2019. (ECF No. 77-1, Memorandum of Law in Support of Defendant Izia Rokosz's Motion to Dismiss (“Rokosz Mot.”).) Defendant Frank Richard Hurley (“Hurley”) sought and obtained the court's permission to join the arguments asserted in Legum's motion; defendants Gregg Telsey (“Telsey”) and Royce LLC (“Royce”) have likewise received permission to join the arguments asserted by Rokosz's motion. (See Order dated June 5, 2019; Order dated June 28, 2019; Order dated July 26, 2019.) Rokosz, Hurley, Legum, Telsey, and Royce will be referred to collectively herein as the “Moving Defendants.” This Memorandum and Order pertains only to the fifth and sixth claims of the complaint that are raised in the Moving Defendants' motions.[1]

         For the reasons set forth below, the court GRANTS the Moving Defendants' motions and DISMISSES plaintiff's Section 349 and RICO claims.


         The following facts are drawn exclusively from plaintiff's complaint, which the court presumes to be true for purposes of a motion to dismiss. See Glob. Network Commc'ns, Inc. v. City of New York, 458 F.3d 150, 154 (2d Cir. 2006) (citing Allaire Corp. v. Okumus, 433 F.3d 248, 249-50 (2d Cir. 2006)) (For a 12(b)(6) “motion, we are constrained to accept as true the factual allegations contained in the complaint and draw all inferences in plaintiff's favor.”).

         I. The Parties

         Plaintiff is a 51-year-old Afro-Caribbean woman who resides at 611 East 48th Street in the East Flatbush neighborhood of Brooklyn, New York (“Property”). (Compl. ¶¶ 1, 7.) Plaintiff has lived at the Property for over 35 years. (Id. ¶ 11.) The complaint notes that the Kings County District Attorney's Office referred plaintiff to Mobilization for Justice, Inc., her current counsel, in light of the possibility that plaintiff was a “victim of mortgage fraud in need of free civil legal services.” (Id. ¶ 19.)

         Rokosz, a New York resident, is the lender who originated the mortgage loans in question, and, since 2014, has originated at least thirteen other mortgage loans for one-to-four family homes in New York City with terms requiring interest-only payments, for a period of one to three years, at ¶ 12 percent interest rate. (Id. ¶ 8.) Of these fourteen known loans, Rokosz issued ten in predominately minority communities. (Id. ¶ 125.) Legum, also a New York resident, is an attorney admitted to practice in the State of New York, and served as Rokosz's agent and attorney for the mortgage loans to plaintiff. (Id. ¶ 10.) Legum is also alleged to have been involved on six of Rokosz's above-described loan transactions. (Id. ¶ 120.) Defendant Janelle Defreitas, who is not a Moving Defendant, brokered the loan transactions at issue. (Id. ¶ 9.) In April 2017, Defreitas was indicted and arrested by the Kings County District Attorney and New York Attorney General on charges related to a complex mortgage fraud and money laundering scheme, and is currently incarcerated on charges stemming from the indictment. (Id.)

         Hurley, a New York-licensed attorney, acted as plaintiff's attorney in connection with the mortgage loans in question. (Id. ¶ 11.) Defreitas allegedly arranged for Hurley to act as plaintiff's attorney. (Id.) Telsey, a New York resident, is a managing partner of Royce, a limited liability company that is registered in New York State and maintains a principal place of business in Jackson Heights, New York. (Id. ¶¶ 11, 15.) The complaint alleges, on information and belief, that Telsey is an associate of one or more unspecified defendants, and that both Telsey and Royce received proceeds from the subject loan transactions. (Id.)

         II. The Property

         Plaintiff has lived in the Property, a two-family home, since her mother first purchased it in 1983. (Compl. ¶¶ 18, 20-21.) In 2004, after plaintiff's mother passed away, the Property was devised to plaintiff and her half-sister, Sandra Vaughan. (Id. ¶¶ 21, 22.) Plaintiff continued to reside in the Property after her mother died, and was solely responsible for making all mortgage payments and maintaining the home. (Id. ¶ 23.) By 2006, plaintiff successfully paid off the remaining mortgage balance on the Property. (Id. ¶ 24.)

         In 2008, plaintiff's situation grew precarious. Plaintiff's half-sister, Ms. Vaughan, brought a partition action against plaintiff to divide the Property. (Id. ¶ 25.) At the time, plaintiff was undergoing chemotherapy and could not continue her job as a home health aide. (Id.) Plaintiff claims her vulnerable circumstances rendered her unable to defend against her half-sister's partition suit, leading to a default judgment against plaintiff. (Id.) Following her default, plaintiff was subjected to pressure tactics by Ms. Vaughan, including demands for plaintiff to take out a loan to buy Ms. Vaughan's portion of the Property, and unannounced visits by Ms. Vaughan, or her agents, to show the Property for sale. (Id. ¶ 26.) To make matters worse, plaintiff also fell behind on her property taxes. (Id. ¶ 27.)

         Confronted by potential tax liens and her half-sister's pressure tactics, plaintiff decided to seek a loan to avoid losing her home. (Id. ¶¶ 26-28, 30.)[2] Plaintiff was not able to secure a loan from traditional mortgage lenders, however, because she was not working at the time. (Id. ¶ 28.) In 2016, a neighborhood confidante of plaintiff's referred her to Defreitas, who was a member of plaintiff's local community. (Id. ¶¶ 30-31.) Defreitas assured plaintiff that she could help plaintiff obtain a mortgage to pay off Ms. Vaughan. (Id. ¶ 31.) Plaintiff alleges, on information and belief, that Defreitas was aware of plaintiff's lack of income. (Id.)

         In late 2016 or early 2017, Defreitas advised plaintiff that she had found a lender. (Id. ¶ 33.) But in order for plaintiff to obtain the loan, Defreitas told her that she had to transfer the Property to a corporation-J&M Holdings, Inc. (“J&M”). (Id. ¶¶ 33-35.) Defreitas explained that the use of a corporation was necessary because plaintiff planned to live at the Property while renting out its second-floor apartment, and according to Defreitas, the person who receives a loan could not both live in and own a property. (Id. ¶ 33.)

         Defreitas then orchestrated the transfer of the Property from plaintiff to J&M. Defreitas drove plaintiff to Queens to meet with Jaipaul Persaud, [3] who Defreitas said would prepare the paperwork to effectuate the transfer of the Property. (Id. ¶ 34.) When plaintiff and Defreitas arrived at Mr. Persaud's office, Defreitas instructed plaintiff to wait in the car, and after a prolonged wait, Defreitas returned without any paper work for plaintiff to sign or retain for her records. (Id.) According to a document filed by Mr. Persaud with the New York Department of State on January 13, 2017, Defreitas signed the “Certificate of Incorporation” for J&M as the “Incorporator.” (Id. ¶ 35.)

         Around the same time, Defreitas arranged for plaintiff to meet with defendant Hurley, who Defreitas said would represent plaintiff in a closing for a mortgage loan. (Id. ¶ 36.) Defreitas introduced plaintiff to Hurley at a local restaurant for a short meeting at which Defreitas mostly spoke on plaintiff's behalf. (Id.) Plaintiff was not presented with a retainer agreement for defendant Hurley's legal services. (Id.) In early 2017, Defreitas notified plaintiff of a date, time, and place for the closing, but provided plaintiff with no information about the name of the lender or anyone else who would attend the closing. (Id. ¶ 39.)

         Before the closing took place, Telsey paid a visit to the Property, accompanied by another, unidentified man. (Id. ¶ 40.) Plaintiff believed that Telsey was an appraiser, though the complaint does not allege the basis for plaintiff's belief nor does it allege that Telsey presented himself as an appraiser. (Id.) Telsey inspected the Property and handed plaintiff a business card from Royce. (Id.)

         III. The First Closing

         On February 6, 2017, plaintiff attended the loan closing at Legum's office in Mineola, New York (“First Closing”). (Compl. ¶ 41.) There, plaintiff learned for the first time that Rokosz was the lender. (Id. ¶ 42.) Rokosz did not attend the First Closing, however, and was represented by his attorney, Legum. (Id.) In addition to Legum, the First Closing was attended by Defreitas, Hurley, Telsey, defendant Betty Hingle, as well as plaintiff's half-sister Ms. Vaughan, Vaughan's attorney, and Vaughan's son. (Id. ¶¶ 43-47.) Right before or during the First Closing, Hurley told plaintiff to sign a letter, dated February 6, 2017, which stated that the loan she was about to receive was a “hard money loan, ” that most borrowers are unable to afford such a loan, and that she would release Hurley of any liability in connection with any future lawsuit arising from the loan. (Id. ¶ 48.) After plaintiff signed the letter, Hurley proceeded to represent her at the First Closing. (Id. ¶ 49.)

         At the closing, plaintiff signed and executed an agreement whereby she received a loan in the principal amount of $330, 000.00 (“First Loan”). (Id. ¶ 65.) Plaintiff was not informed of the First Loan's terms, which provided for a 12 percent annual interest rate, a one-year term, and interest-only payments for the term of the loan. (Id. ¶ 66.) The bulk of the First Loan proceeds, $221, 276.85, was applied to plaintiff's debts, including $150, 000 to pay Vaughan for her share of the Property, $71, 126.85 to pay outstanding property taxes, and $150 to satisfy another debt. (Id. ¶ 67.) Plaintiff did not directly receive any of the remaining $108, 723.15, of which $45, 792.68 was retained in escrow, and various amounts distributed to other parties, including $3, 000 to Legum, $1, 500 to Hurley, and nearly $3, 000 to Royce. (Id. ¶ 68.)[4]

         At some point during the First Closing, Hurley took plaintiff aside for a private conversation in a separate room. (Id. ¶ 55.) Once the two were alone, Hurley told plaintiff that he “didn't like the figures” that were provided, but plaintiff did not understand what he meant. (Id.) Before Hurley could explain, Defreitas barged in and told Hurley that his only job was to have plaintiff sign the documents. (Id.) Hurley and plaintiff returned to the conference room where the closing was taking place without Hurley clarifying his concern about “the figures.” (Id.) Defreitas also reassured plaintiff that she had no need to worry about the monthly payments associated with the mortgage loan because Defreitas would make the payments herself until plaintiff refinanced the First Loan with a Federal Housing Administration (FHA) loan. (Id. ¶¶ 38, 56.)

         At the closing, Legum gave Hurley a No. of documents, which Hurley, in turn, passed on to plaintiff for her signature. (Id. ¶¶ 51, 57.) These documents included a Promissory Note, an Escrow Agreement, an Assignment and Security Agreement, a Guarantee, and a Corporate Resolution, the pertinent provisions of which are described below. (Id. ¶ 57.)

         Despite instructing plaintiff to sign these documents, Hurley did not provide plaintiff with any explanation of the documents' contents or the implications of plaintiff signing them. (Id. ¶ 51.) Plaintiff was also not afforded an opportunity to read the documents. (Id. ¶ 57.) Among the documents Legum passed to Hurley for plaintiff's signature was the deed transferring the Property from plaintiff to J&M. (Id. ¶ 52.) Hurley instructed plaintiff to sign the deed, which she signed on behalf of J&M. (Id.) Ms. Vaughan then signed the deed transferring her share of the Property to J&M. (Id. ¶ 53; see also ECF No. 77-4, Declaration of Jeremy M. Doberman, Exhibit B (Indenture, dated February 6, 2017, conveying Sandra Vaughan's interest in Property to J&M).)

         Pursuant to the Promissory Note, plaintiff agreed to personally advance $10, 000 to Telsey and defendant Robert Fishbein. (Compl. ¶ 59.) According to the Promissory Note, the funds advanced to Telsey and Fishbein were for the purpose of closing the First Loan. (Id.) Critically, the Promissory Note provided that any default under its terms would be deemed a default of the First Loan as well. (Id.)

         The Escrow Agreement that plaintiff signed required her to post $45, 792 to Legum, in his capacity as escrow agent. (Id. ΒΆ 60.) The Escrow Agreement further provided that, upon plaintiff's default, Rokosz could authorize Legum to make payments out of the escrowed funds, without notice to plaintiff. Plaintiff ...

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