Abraham v. Am. Home Mortg. Servicing, Inc.

947 F.Supp.2d 222

Leela ABRAHAM, et al., Plaintiffs,

v.AMERICAN HOME MORTGAGE SERVICING, INC., et al., Defendants.

No. 12–cv–4686 (WFK)(JMA).

United States District Court, E.D. New York.

May 23, 2013.

Janine Zimmerman Schatz, The Resolution Law Group, P.C., New York, NY, Geoffrey R. Broderick, The Resolution Law Group, P.C., Greenwich, CT, for Plaintiffs.

Nafiz Cekirge, Bryan Cave LLP, Santa Monica, CA, Jacqueline M. Della Chiesa, Justin Michael Rowe, Stagg, Terenzi, Confusione & Wabnik LLP, Garden City, NY, James A. Resila, Carter Conboy, et al., Michael J. Catalfimo, Carter Conboy Case Blackmore Maloney & Laird P.C., Albany, NY, Sean C. McPhee, Phillips Lytle LLP, Buffalo, NY, Bradley L. Mitchell, Stevens & Lee, Princeton, NJ, James M. Goodin, Thomas J. Cunningham, Locke Lord LLP, Lucia Nale, Thomas V. Panoff, Mayer Brown LLP, Chicago, IL, Robert Bruce Allensworth, Brian M. Forbes, K&L Gates LLP, Boston, MA, Daniel Paul Jaffe, Husch Blackwell Sanders LLP, Joann T. Sandifer, Husch Blackwell LLP, Saint Louis, MO, Jordan Jayce Manfro, Knuckles, Komosinski & Elliott, LLP, Elmsford, NY, Scott Harris Kaiser, Christine B. Cesare, Bryan Cave LLP, Matthew P. Previn, Buckley Sandler LLP, Joseph N. Froehlich, Ford Bissell & Brook LLP, Mitra Singh, Houser & Allison, APC, Stephen George Rinehart, Troutman Sanders LLP, Joseph B. Schmit, Phillips Lytle LLP, Constantine D. Pourakis, Stevens & Lee, P.C., Matthew D. Ingber, Mayer Brown LLP, Allison J. Schoenthal, Lisa Fried, Allison J. Schoenthal, Lisa Fried, Hogan Lovells U.S. LLP, S. Robert Schrager, Hodgson Russ LLP, R. James Jude De Rose, III, Locke Lord Bissell & Liddell LLP, David S. Versfelt, Sarah Peck Kenney, Kirkpatrick & Lockhart Preston Gates Ellis LLP, Douglas E. Fleming, Skadden, Arps, et. al., New York, NY, Mitchel H. Kider, Weiner Brodsky Sidman & Kider PC, Washington, DC, John C. Blessington, Pro Hac Vice, Michael Demarco, Pro Hac Vice, for Defendants.

MEMORANDUM AND ORDER

WILLIAM F. KUNTZ, II, District Judge.

Plaintiffs, a group of several hundred current and former homeowners, brought this action against several dozen mortgage originators and servicers (collectively “Defendants”), alleging Defendants, inter alia, induced Plaintiffs to enter into mortgages based on inflated appraisals; purposefully avoided local recordation statutes, thereby clouding Plaintiffs' titles; transferred, bundled, packaged and sold their mortgages to investors while simultaneously betting against those mortgages; and failed to use TARP funds to help Plaintiffs, as required under law. As a result, Plaintiffs claim they lost equity in their homes, suffered damage to their credit ratings, and incurred unnecessary costs and expenses. Plaintiffs bring claims for fraud, deceit, and fraudulent concealment; intentional misrepresentation; negligent misrepresentation; unlawful and deceptive trade practices; breach of contract and constructive fraud; constructive trust / third-party beneficiaries; negligence; slander of title; ejectment for wrongful possession of claim on land; concert of action and member liability in a joint enterprise; and unjust enrichment.

Defendants have filed several motions to sever and dismiss under Rule 12 of the Federal Rules of Civil Procedure, asserting that, inter alia, Plaintiffs are misjoined, have failed to state a claim, have not demonstrated that Defendants owed them a duty of care, have failed to demonstrate causation, and have failed to establish personal jurisdiction over certain Defendants. Plaintiffs have moved to file a third amended complaint. For the reasons stated below, the Court grants Defendants' motion to sever, and dismisses without prejudice all Plaintiffs except the first named Plaintiff. With regard to the claims of the first named Plaintiff, the Court finds that Ms. Abraham has failed to state a claim under Rule 12(b)(6) and dismisses her claims in their entirety.

BACKGROUND

Mortgage Electronic Registration Systems, Inc. is a wholly owned subsidiary of MERSCORP (collectively “MERS”). In re Mortgage Elec. Registration Sys. (MERS) Litig., MDL No. 09–2119–JAT, 2011 WL 4550189, at *3 (D.Ariz. Oct. 3, 2011) (Teilborg, J.). MERS owns and operates the MERS System, a “national electronic registry system that tracks the changes in servicing rights and beneficial ownership interests in mortgage loans that are registered on the registry.” MERS, About Us, http:// www. mersinc. org/ about- us/ about- us (last visited May 22, 2013).

In their second amended complaint, Plaintiffs allege “[t]he mortgage industry created MERS to allow financial institutions to evade county recording fees, avoid publicly recording mortgage transfers, and facilitate the rapid sale and securitization of mortgages en masse.” Second Am. Compl. (“Compl.”) at ¶ 455. Under this system, financial institutions designate MERS as the mortgagee of the loan in local public records and then log all mortgage transfers in the private MERS registry. Id. Because MERS remains the nominal mortgagee, financial institutions need not publicly record subsequent sales or transfers. Id.

MERS is designated as the mortgagee on tens of millions of mortgages throughout the country. Id. at ¶ 457. MERS requires members to pay an annual membership fee and also charges a modest fee to register a mortgage in the system and to register transactional changes associated with that mortgage. Id. at ¶ 444. MERS has few employees, but has designated over 20,000 employees of its members as MERS “certifying officers” to act on behalf of MERS. Id. at ¶ 457. These certifying officers are authorized to assign MERS mortgages, to execute paperwork necessary to foreclose on properties secured by MERS mortgages, and to submit proofs of claims and affidavits on behalf of MERS in bankruptcy proceedings. Id.

Defendants are members, subscribers, or participants in the MERS System. Id. at ¶ 444. Plaintiffs allege Defendants participated in the MERS System without disclosing that MERS would be used to avoid local recordation statutes, which failure to properly record Plaintiffs' mortgages created a cloud on the titles of Plaintiffs' properties. Id. at ¶ 442. Defendants then transferred, bundled, packaged, and sold these mortgages to investors, while simultaneously betting against the viability of these mortgages. Id. at ¶ 443. In addition, Defendants sold notes and deeds of trust pertaining to Plaintiffs' properties to nominees who were not authorized under law to own mortgages, misrepresented Plaintiffs' true financial condition and the true values of Plaintiffs' homes and mortgages, and further misled investors by selling collateralized mortgage pools at an inflated value. Id. at ¶ 470. MERS failed to ensure that its records were accurate and up-to-date, and did not enforce its requirement that transfers be recorded in a timely manner. Id. at ¶ 465.

Plaintiffs separately allege Defendants induced them to enter into mortgages based, in part, upon appraisals Defendants knew were inflated. Id. at ¶ 440. Further, these inflated appraisals were produced with the knowledge, acquiescence, or insistence of Defendants, who coerced inflated appraisals from the appraisers. Id. Defendants also failed to comply with the underwriting guidelines intended for use in originating Plaintiffs' loans. Id. at ¶ 443.

As a result of Defendants' actions, Plaintiffs lost equity in their homes, suffered damage to their credit ratings and histories, and incurred other costs and expenses. Id. at ¶ 451. Plaintiffs claim Defendantsknew or should have known that the scale of Defendants' lending, which was based on inflated property values and insufficient income verification, and which violated loan underwriting guidelines, would lead to widespread declines in property values, which would in turn cause Plaintiffs to lose the equity they had invested in their homes and prevent Plaintiffs from refinancing or selling their homes except at a loss. Id. at ¶ 453.

Plaintiffs filed this action on May 3, 2012 in the Supreme Court of New York, Kings County, and filed a first amended complaint before that court on July 30, 2012. Notice of Removal, Dkt. No. 1, Ex. A. On September 19, 2012, PNC Bank, National Association, one of the Defendants in the action, removed the case to this Court. Notice of Removal, Dkt. No. 1. Plaintiffs filed a second amended complaint before this Court on November 8, 2012. Compl., Dkt. No. 94.

STANDARD OF REVIEW

In reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court must accept the factual allegations set forth in the complaint as true and draw all reasonable inferences in favor of the Plaintiff. Zinermon v. Burch, 494 U.S. 113, 118, 110 S.Ct. 975, 108 L.Ed.2d 100 (1990); In re NYSE Specialists Secs. Litig., 503 F.3d 89, 91 (2d Cir.2007). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

LEGAL ANALYSIS

I. Joinder

Rule 20 of the Federal Rules of Civil Procedure provides that multiple individuals may join in one action as plaintiffs 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). “The purpose of Rule 20 is to promote trial convenience and to expedite the final determination of disputes.” Vanderzalm v. Sechrist Indus., Inc., 875 F.Supp.2d 179, 183 (E.D.N.Y.2012) (Spatt, J.) (internal...