Flagg v. Yonkers Sav. And Loan Ass'n, Fa, No. 03 CIV. 5133(WCC).

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Writing for the CourtWilliam C. Conner
Citation307 F.Supp.2d 565
Decision Date08 March 2004
Docket NumberNo. 03 CIV. 5133(WCC).
PartiesHans W. FLAGG and Eileen S. Flagg, on behalf of themselves and all others similarly situated, Plaintiffs, v. YONKERS SAVINGS AND LOAN ASSOCIATION, FA (a/k/a Yonkers Financial), Defendant.
307 F.Supp.2d 565
Hans W. FLAGG and Eileen S. Flagg, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
YONKERS SAVINGS AND LOAN ASSOCIATION, FA (a/k/a Yonkers Financial), Defendant.
No. 03 CIV. 5133(WCC).
United States District Court, S.D. New York.
March 8, 2004.

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Wechsler Harwood LLP, (William R. Weinstein, Esq., Robert I. Harwood, Esq., Of Counsel), Rabunski & Katz, LLP (Michael Katz, Esq., Of Counsel), New York City, for Plaintiffs and the Putative Class.

Thacher Proffitt & Wood LLP (Jean E. Burke, Esq., Doreen Klein, Esq., Of Counsel), White Plains, NY, for Defendant.

OPINION AND ORDER

WILLIAM C. CONNER, Senior District Judge.


Plaintiffs Hans W. Flagg and Eileen S. Flagg, on behalf of themselves and all others similarly situated, bring this action against defendant Yonkers Savings and Loan Association, a/k/a Yonkers Financial ("Yonkers"),1 seeking declarations: (1) pursuant to 28 U.S.C. § 2201 that federal law neither preempts nor precludes the applicability of New York sta4utes requiring the payment of interest on escrow accounts; (2) pursuant to 28 U.S.C. § 2202 that defendant's actions in connection with the mortgages of plaintiffs and the putative class violated N.Y. GEN. OBLIG. LAW § 5-601; Gen. Bus. Law § 349, Banking Law §§ 14-b and 6-k, Real Prop. Tax Law § 953(2) and constitute breach of contract and unjust enrichment; and (3) pursuant to 28 U.S.C. § 2202 that plaintiffs and the putative class are entitled to compensatory damages or disgorgement or restitution in an amount to be determined at trial.2 In the alternative, should this Court hold that the federal regulations preempt the state statutes, plaintiffs seek a declaration that the federal regulations constitute a taking under the Fifth Amendment that entitles them to just compensation. Plaintiffs also seek certification of this case as a class action pursuant to Fed. R. Civ. P. 23 with plaintiffs certified as class representatives.3 Defendant has moved pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss the Complaint with prejudice for failure to state a claim on which relief can be granted. Plaintiffs have cross moved pursuant to Fed. R. Civ. P. 56 and 23 for summary judgment and class certification. For the reasons set forth herein, we grant defendant's Rule 12(b)(6) motion to dismiss the Complaint with prejudice and deny as moot plaintiffs' Rule 56 cross motion for summary judgment.4

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BACKGROUND

The facts underlying this dispute are simple and undisputed. Plaintiffs entered into a mortgage contract with defendant on June 12, 1998, in connection with a loan on their residence in Scarsdale, New York. (Pls. Rule 56.1 Stmt. ¶ 1; Complt. ¶ 6.) That contract included a provision governing funds held in escrow by defendant to pay for, inter alia, taxes, assessments and insurance, entitled "Lender's Obligations." (Pls. Rule 56.1 Stmt. ¶ 2.) This provision provides in relevant part:

Lender will not be required to pay me any interest or earnings on the funds unless either (i) Lender and I agree in writing, at the time I sign this Security Instrument, that Lender will pay interest on the Funds; or (ii) the law requires Lender to pay interest on the Funds.

With respect to the governing law, the mortgage agreement states:

This Security Instrument is governed by federal law and the law that applies in the place where the Property is located. If any term of this Security Instrument or of the Note conflicts with the law, all other terms of this Security Instrument and of the Note will remain in effect if they can be given effect without the conflicting term. This means that any terms of this Security Instrument and of the Note which conflict with the law can be separated from the remaining terms, and the remaining terms will still be enforced.

(Pls. Rule 56.1 Stmt. ¶ 3 (emphasis added).) Pursuant to this agreement, plaintiffs deposited more than $4,000 into the escrow account with defendant at the time that their loan closed, and the balance of that account sometimes exceeded $6,000 during the life of that loan. (Id. ¶ 4.) Defendant never paid plaintiffs interest on that account before Yonkers merged with Atlantic Bank in May 2002. (Id. ¶ 5.) After the merger, Atlantic Bank began to pay plaintiffs interest on their escrow account. (Id. ¶ 6.)

DISCUSSION

I. Standard of Review

On a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), the court must accept as true all of the well pleaded facts and consider those facts in the light most favorable to the plaintiff. See Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975); Hertz Corp. v. City of New York, 1 F.3d 121, 125 (2d Cir.1993); In re AES Corp. Sec. Litig., 825 F.Supp. 578, 583 (S.D.N.Y.1993) (Conner, J.). On such a motion, the issue is "whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183, 104 S.Ct. 3012, 82 L.Ed.2d 139 (1984). A complaint should not be dismissed for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Padavan v. United States, 82 F.3d 23, 26 (2d Cir.1996) (quoting Hughes v. Rowe, 449 U.S. 5, 10, 101 S.Ct. 173, 66 L.Ed.2d 163 (1980)). Generally, "[c]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss." 2 James Wm. Moore et al., Moore's Federal Practice § 12.34[1][b] (3d ed.1997); see also Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1088 (2d Cir.1995). Allegations that are so conclusory that they fail to give notice of the basic events and circumstances of which the plaintiff complains, are insufficient

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as a matter of law. See Martin v. N.Y. State Dep't of Mental Hygiene, 588 F.2d 371, 372 (2d Cir.1978).

II. Whether the New York Escrow Account Interest Statutes are Preempted

Defendant claims that regulations implemented by the Office of Thrift Supervision ("OTS") pursuant to the Home Owners Loan Act, 12 U.S.C. § 1464(a) (the "HOLA Regulations") preempt those New York state statutes that require the payment of interest on escrow funds because those regulations completely occupy the field of regulating federal savings associations and do not require interest payments in the absence of a written agreement to that effect. (Def. Mem. Supp. Mot. Dismiss at 4, 8.) Defendant also claims that the preemptive effect of these regulations is not vitiated by the Real Estate Settlement Procedures Act of 1974 ("RESPA"). (Id. at 10.) Plaintiffs contend otherwise. We begin our analysis with a review of the statutes and regulations at issue.

A. Review of the State and Federal Statutes and Regulations at Issue

The HOLA Regulations are promulgated pursuant to 12 U.S.C. §§ 1463(a)5 and 1464(a).6 With respect to federal preemption as to the operation of federal savings associations, 12 C.F.R. § 545.2 provides generally:

The regulations in this Part 545 are promulgated pursuant to the plenary and exclusive authority of the Office to regulate all aspects of the operations of Federal savings associations, as set forth in section 5(a) of the Act. This exercise of the Office's authority is preemptive of any state law purporting to address the subject of the operations of a Federal savings association.

Id. (emphasis added). The HOLA Regulation governing preemption with respect to the lending and investment practices of federal savings associations is 12 C.F.R. § 560.2(a), which provides:

Pursuant to sections 4(a) and 5(a) of the HOLA, 12 U.S.C. 1463(a), 1464(a), OTS is authorized to promulgate regulations that preempt state laws affecting the operations of federal savings associations when deemed appropriate to facilitate the safe and sound operation of federal savings associations, to enable federal savings associations to conduct their operations in accordance with the best practices of thrift institutions in the United States, or to further other purposes of the HOLA. To enhance safety and soundness and to enable federal savings associations to conduct their operations in accordance with best practices (by efficiently delivering low-cost credit to the public free from undue regulatory duplication and burden),

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OTS hereby occupies the entire field of lending regulation for federal savings associations. OTS intends to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation. Accordingly, federal savings associations may extend credit as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise affect their credit activities, except to the extent provided in paragraph (c) of this section or § 560.110 of this part.7 For purposes of this section, "state law" includes any state statute, regulation, ruling, order or judicial decision.

Id. (emphasis added). Section 560.2 also provides "illustrative examples" of "the types of state laws preempted by paragraph (a) of this section" and states that they "include, without limitation, state laws purporting to impose requirements regarding ... Escrow accounts, impound accounts, and similar accounts." Id. § 560.2(b)(6) (emphasis added). Section 560.2 then sets forth a list of state laws that are not preempted; this list does not mention escrow accounts or other laws relating to interest. See id. § 560.2(c).8 This chapter does not contain a regulation specifically requiring the payment of interest by lenders on funds held in escrow accounts.

New York has, however, several state statutes governing mortgage lending institutions that do require the payment of interest on escrow...

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  • State Farm Bank, F.S.B. v. Burke, No. 3:05CV808 (JBA).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • June 21, 2006
    ...framework contained in a "[n]otice, rather than in new regulations or a revenue ruling"); Flagg v. Yonkers Savings & Loan Ass'n, F.A., 307 F.Supp.2d 565, 576 (S.D.N.Y.2004) (holding that the Auer standard of deference "extends to interpretative positions taken in opinion or policy letters i......
  • McAnaney v. Astoria Financial Corp., No. 04-CV-1101(ADS)(WDW).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • February 17, 2005
    ...practices at or before settlement, has recently been adopted by a court in this circuit. See Flagg v. Yonkers Sav. and Loan Ass'n, FA, 307 F.Supp.2d 565, 580 (S.D.N.Y.2004). In Flagg, the court concluded that obligations such as the payment of interest during the term of the mortgage "falls......
  • S&R Dev. Estates, LLC v. Town of Greenburgh, No. 16-CV-8043 (CS)
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • August 29, 2018
    ...144 at 2), the Takings Clause does not operate against private individuals like the Plaintiff. Flagg v. Yonkers Sav. & Loan Ass'n, FA , 307 F.Supp.2d 565, 585 (S.D.N.Y. 2004) ("It is beyond cavil that governmental action is required to trigger the application of this clause; it does not app......
  • Rothstein v. Gmac Mortg., LLC, 12 Civ. 3412 (AJN)
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • September 30, 2013
    ..."was enacted to protect consumers from unnecessary fees while purchasing a home") (citing Flagg v. Yonkers Sav. & Loan Ass'n, FA, 307 F. Supp. 2d 565, 580 (S.D.N.Y. 2004)). Defendants have provided no authority or compelling argument to suggest that the Court should not follow what appears ......
  • Request a trial to view additional results
16 cases
  • State Farm Bank, F.S.B. v. Burke, No. 3:05CV808 (JBA).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • June 21, 2006
    ...framework contained in a "[n]otice, rather than in new regulations or a revenue ruling"); Flagg v. Yonkers Savings & Loan Ass'n, F.A., 307 F.Supp.2d 565, 576 (S.D.N.Y.2004) (holding that the Auer standard of deference "extends to interpretative positions taken in opinion or policy letters i......
  • McAnaney v. Astoria Financial Corp., No. 04-CV-1101(ADS)(WDW).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • February 17, 2005
    ...practices at or before settlement, has recently been adopted by a court in this circuit. See Flagg v. Yonkers Sav. and Loan Ass'n, FA, 307 F.Supp.2d 565, 580 (S.D.N.Y.2004). In Flagg, the court concluded that obligations such as the payment of interest during the term of the mortgage "falls......
  • S&R Dev. Estates, LLC v. Town of Greenburgh, No. 16-CV-8043 (CS)
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • August 29, 2018
    ...144 at 2), the Takings Clause does not operate against private individuals like the Plaintiff. Flagg v. Yonkers Sav. & Loan Ass'n, FA , 307 F.Supp.2d 565, 585 (S.D.N.Y. 2004) ("It is beyond cavil that governmental action is required to trigger the application of this clause; it does not app......
  • Rothstein v. Gmac Mortg., LLC, 12 Civ. 3412 (AJN)
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • September 30, 2013
    ..."was enacted to protect consumers from unnecessary fees while purchasing a home") (citing Flagg v. Yonkers Sav. & Loan Ass'n, FA, 307 F. Supp. 2d 565, 580 (S.D.N.Y. 2004)). Defendants have provided no authority or compelling argument to suggest that the Court should not follow what appears ......
  • Request a trial to view additional results

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