Tardibuono-Quigley v. HSBC Mortg. Corp.

DAWN TARDIBUONO-QUIGLEY, on behalf of herselfand all others similarly situated, Plaintiff, v. HSBC MORTGAGE CORPORATION (USA),HSBC BANK USA, N.A.,and PHH MORTGAGE CORPORATION, Defendants.

No. 15-CV-6940 (KMK)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

March 30, 2017

AMENDED OPINION & ORDER

Appearances:

Todd S. Garber, Esq.

Douglas G. Blankinship, Esq.

Finkelstein, Blankinship, Frei-Pearson & Garber, LLP

Counsel for Plaintiff

James L. Bernard, Esq.

Julia B. Strickland, Esq.

David W. Moon, Esq.

Nathan H. Stopper, Esq.

Raymond A. Garcia, Esq.

Wesley Griffith, Esq.

Stroock & Stroock & Lavan LLP

New York, NY

Los Angeles, CA

Counsel for HSBC Defendants

Joseph L. Mooney, Esq.

Goldberg Segalla, LLP

Buffalo, NY

Counsel for HSBC Mortgage Corporation (USA)

Alyssa A. Sussman, Esq.

Joseph F. Yenouskas, Esq.

Thomas M. Hefferon, Jr., Esq.

Goodwin Procter, LLP

New York, NY

Washington, DC

Counsel for PHH Mortgage Corporation

KENNETH M. KARAS, District Judge:

Plaintiff Dawn Tardibuono-Quigley ("Plaintiff") brings this putative Class Action against HSBC Mortgage Corporation (USA) ("HSBC Mortgage"), HSBC Bank USA, N.A. ("HSBC Bank," and collectively, "HSBC Defendants"), and PHH Mortgage Corporation ("PHH," and collectively with the HSBC Defendants, "Defendants"), alleging that Defendants violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c), conspired to violate RICO, 18 U.S.C. § 1962(d), violated New York General Business Law ("GBL") § 349, breached a contract, and were unjustly enriched by a scheme to charge borrowers for unnecessary default-related services. (See generally Am. Compl. (Dkt. No. 44).) Defendants have filed Motions To Dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) (the "Motions"). (Dkt. Nos. 46, 49.) For the reasons stated below, PHH's Motion is granted in full, and the HSBC Defendants' Motion is granted in part and denied in part.¹

I. Background

A. Factual Background

The following facts are drawn from Plaintiff's Amended Complaint and the documents appended thereto, and are taken as true for the purpose of resolving the Motions.

1. Defendants and Their Mortgage Servicing Practices

HSBC Bank is the parent company of HSBC Mortgage, which is a mortgage lender, originator, and servicer. (Am. Compl. ¶ 14.) "HSBC Bank exercised, and exercises, specific andfinancial control over the operations of HSBC Mortgage, and it dictates, and dictated, the policies and practices of HSBC Mortgage." (Id. ¶ 19.)

PHH is a mortgage servicer. (Id. ¶ 16.) HSBC Bank and PHH entered into a "strategic relationship" in 2012 whereby PHH agreed to manage HSBC Bank's mortgage processing and servicing operations. (Id. ¶ 17.) According to the terms of the agreement entered into at that time, PHH was contracted to provide HSBC Bank "with mortgage origination processing services as well as sub-servicing of the bank's prime mortgage loan portfolio and for other portfolios." (Id.)

HSBC Mortgage and PHH utilize computer programs to help manage the mortgages they service. (Id. ¶ 26.) The programs are devised to assess fees to borrowers' accounts based on protocols and policies designed by executives at HSBC Mortgage and PHH. (Id.) After a borrower misses a loan payment—i.e., defaults—the programs automatically send work orders to third-party vendors that perform property inspections and broker price opinions ("BPOs") on the mortgaged properties. (Id. ¶¶ 37, 39.) The property inspections are "drive-by" inspections whereby an inspector "'drives by' the property ostensibly to assess whether the property is occupied, being maintained, and has not been damaged." (Id. ¶ 49 (some internal quotation marks omitted).) A BPO consists of a real estate broker assessing the value of the mortgaged property, normally in anticipation of a foreclosure sale. (Id. ¶¶ 45, 62.) The costs associated with these services are passed on to the homeowners in the form of fees added to the monthly mortgage statements mailed or otherwise delivered to the homeowners. (Id. ¶ 41.) Defendants derive their authority to bill the homeowners for these services from the security agreements borrowers must sign before receiving a loan.

Until the default is cured, the computer programs continue to order property inspections every 20 to 45 days. (Id. ¶ 43.) Plaintiff alleges that the mortgage servicing programs are designed such that the property inspection and BPO fees are charged to as many accounts as possible, "even if the inspections and BPOs are unnecessary." (Id. ¶ 37; see also id. ¶ 47 ("This system is . . . designed and operated in a centralized fashion to defraud hundreds of thousands or millions of borrowers that had their loans serviced by" HSBC Mortgage and PHH.).) Ultimately, HSBC Bank is the recipient of the allegedly "ill-gotten" gains because borrowers are directed to send their mortgage payments to HSBC Bank. (Id. ¶ 19; Decl. of Alyssa A. Sussman, Esq., in Supp. of PHH's Mot. To Dismiss Ex. 4 ("Mortgage Statements") (Dkt. No. 51).)²

2. Default-Related Services Provided to Plaintiff

In December 2008, Plaintiff borrowed $280,800 from HSBC Mortgage to purchase a third-floor cooperative apartment (the "co-op") in New Rochelle, New York. (Am. Compl. ¶¶ 55, 67.) Plaintiff signed a promissory note (the "Mortgage Note") agreeing to pay back HSBC Mortgage the amount of the loan, (see id. Ex. 1 ("Mortgage Note")), and signed a security agreement (the "Security Agreement") with HSBC Mortgage pledging the co-op as security for the loan, (id. ¶ 55; see also id. Ex. 2 ("Security Agreement")). The Security Agreement specifies that the "Consequences of Default" include demanding immediate payment of all past-due amounts, the right to sell the co-op and demand that Plaintiff immediately vacate the premises, Plaintiff's forfeiture of voting rights, the appointment of a receiver, and any other rights HSBC Mortgage may have as a matter of law. (Security Agreement 4-5.) Under the heading "Paymentof Expenses," the Security Agreement provides: "You [HSBC Mortgage] have the right to make payments for me [Plaintiff] or to take any action needed to comply with the terms of my Proprietary Lease or to protect or defend your Security." (Id. at 6 (emphases added).) In another section, HSBC Mortgage reserved the right to "inspect [the co-op] at any reasonable time." (Id. at 3.)

Over the course of the loan, Plaintiff "occasionally faced difficulty making timely payments on her loan, and as a consequence she missed several payments." (Am. Compl. ¶ 56.) Plaintiff alleges that after she defaulted, Defendants ordered and charged her for numerous unnecessary property inspections. (Id.) From the end of January 2011 through December 1, 2012, Plaintiff made payments and was improperly charged inspection fees as follows:

• Payment on January 31, 2011;

• Property inspection on February 24, 2011;

• Property inspection on March 21, 2011;

• Property inspection on April 21, 2011;

• Payment on May 11, 2011;

• Property inspection on July 25, 2011;

• Property inspection on August 22, 2011;

• Payment on August 23, 2011;

• Property inspection on September 22, 2011;

• Property inspection on October 26, 2011;

• Property inspection on November 28, 2011;

• Property inspection on December 27, 2011;

• Property inspection on February 21, 2012;

• Payment on March 30, 2012;

• Payment on April 27, 2012;

• Payment on May 29, 2012;

• Payment on June 29, 2012;

• Payment on July 27, 2012;

• Property inspection on August 20, 2012;

• Property inspection on September 24, 2012;

• Property inspection on October 22, 2012;

• Payment on October 26, 2012;

• Property inspection on November 26, 2012;

• Payment on November 26, 2012.

(Id. ¶ 57.) The property inspections were reflected in Plaintiff's monthly statements as "AUTO PPTY INSPEC," (see, e.g., id. ¶ 57(b) (internal quotation marks omitted)), and Plaintiff was charged $12.50 for each inspection, (see, e.g., id.). The inspections were performed by third-party property preservation vendors and consisted of drive-by inspections of the co-op. (Id. ¶ 66.) Plaintiff alleges that the inspections were unnecessary because many of the inspections were conducted 30 days or less after Plaintiff made a mortgage payment, indicating that Plaintiff did not abandon the co-op. (Id. ¶ 58; see also id. ¶ 65 (alleging that Plaintiff was in "constant contact" with PHH, which eventually took over servicing Plaintiff's mortgage); id. ¶ 66 (alleging that PHH knew that Plaintiff was occupying the co-op).) The inspections were allegedly useless because the drive-by inspections revealed little about the state of Plaintiff's co-op, which is located on the third floor of an apartment building that does not permit public access to outsiders. (Id. ¶ 67.)

Plaintiff has been unable to make a mortgage payment since November 26, 2012. (Id. ¶ 59.) From November 26, 2012, to May 2015, Plaintiff's co-op was inspected 30 times. (Id. ¶ 60.) The fees associated with these inspections were again reflected in Plaintiff's monthly statements as "AUTO PPTY INSPEC," and Plaintiff was billed $12.50 for some of the inspections, but $11.25 for most of them. (Id. (internal quotation marks omitted).) On average, Plaintiff's co-op was inspected once a month.³ During this same period of time, Plaintiff was charged for 9 BPOs. (Id. ¶ 61.) These charges were reflected on Plaintiff's monthly statements as "BPOO Brokers Opinion," "BPOO FLIP," and "BPO Cost," and Plaintiff was billed amountsranging from $85 to $110 each time. (Id. (internal quotation marks omitted).) Plaintiff alleges that she paid some of the fees associated with the property inspections and BPOs. (Id. ¶ 70.)⁴

3. Claims Asserted

Plaintiff asserts five causes of action. First, Plaintiff alleges that Defendants, the property preservation vendors, and the real estate agents who conducted the BPOs violated RICO § 1962(c) by joining together to form a RICO enterprise, the common purpose of which was to charge borrowers for unnecessary...