Karakus v. Wells Fargo Bank, N.A.

• Decision Date: 22 April 2013
• Docket Number: No. 09–cv–4739 (ENV)(SMG).,09–cv–4739 (ENV)(SMG).
• Parties: Isro KARAKUS, a/k/a Kevin Isa Karakus and Lale Karakus, Plaintiffs, v. WELLS FARGO BANK, N.A., Defendant.
• Court: U.S. District Court — Eastern District of New York

941 F.Supp.2d 318

Isro KARAKUS, a/k/a Kevin Isa Karakus and Lale Karakus, Plaintiffs,

v.WELLS FARGO BANK, N.A., Defendant.

No. 09–cv–4739 (ENV)(SMG).

United States District Court,

E.D. New York.

April 22, 2013.

Stephen A. Katz, Stephen A. Katz, P.C., New York, NY, for Plaintiffs.

Allison J. Schoenthal, Jordan Lancaster Estes, Hogan Lovells U.S. LLP, New York, NY, for Defendant.

MEMORANDUM AND ORDER

VITALIANO, District Judge.

Plaintiffs Lale Karakus and Isro Karakus, aka Kevin Isa Karakus (“the Karakuses”) brought this action against defendant Wells Fargo Bank, N.A. (“Wells Fargo”) in connection with a home mortgage refinancing. Plaintiffs assert federal claims as well as state statutory and common law claims. As relief, they effectivelyseek to rescind two loans they received from Wells Fargo in 2006 and to terminate the lien on their property. Plaintiffs also demand damages, costs, and attorney's fees. Wells Fargo has moved to dismiss the entire complaint under Federal Rule of Civil Procedure 12(b)(6). The Karakuses oppose, and have responded with a cross-motion to join as a defendant Deutsche Bank National Trust Company (“Deutsche Bank”) as trustee for RBSGC 20070–B, which now holds one of the two loans, as well as a cross-motion for leave to amend their complaint a second time with additional factual allegations.

For the reasons discussed below, the Karakuses' cross-motion is granted insofar as it joins Deutsche Bank as a defendant and includes new facts relevant to their Truth in Lending Act (“TILA”) claim regarding the $265,000 mortgage refinancing loan. The cross-motion is otherwise denied. Wells Fargo's motion to dismiss is granted, although plaintiffs' TILA claim regarding the mortgage refinancing loan survives as against Deutsche Bank only.

BACKGROUND

I. FACTUAL BACKGROUND¹

In late August or early September 2006, Mrs. Karakus entered into discussions with Gene Lattanzi, a Wells Fargo employee, about refinancing the mortgage on her and her husband's Staten Island home. (First Am. Compl. (Dkt. No. 33) ¶¶ 5, 67–70). The Karakuses had previously received a mortgage loan on this property from Wells Fargo, which was in place when Mrs. Karakus and Lattanzi had their initial conversation about refinancing. ( Id. ¶ 26). Multiple conversations regarding the terms of the refinancing arrangement followed prior to closing. ( Id. ¶¶ 67–68). The deal closed on November 17, 2006. ( Id. ¶¶ 5, 11, 16).

The transaction as structured included two new loans from Wells Fargo to Mrs. Karakus. ( Id. ¶ 5). The first loan (“the mortgage refinancing loan”) was a $265,000, 30–year loan at a fixed interest rate of 6.625%. ( Id.) The proceeds were used to pay the $53,841.86 balance that remained on the Karakuses' existing mortgage loan (“the original mortgage loan”), in the original principal amount of $117,000. (Pl. Opp. Mem. at 4).² The second loan (“the home equity loan”) was a $210,000, 15–year loan at a fixed interest rate of 8.875%, requiring a balloon payment of $167,583.79 at the end of the loan's term. (First Am. Compl. ¶¶ 5, 29). Although Mr. Karakus was initially (and incorrectly) listed as borrower on the home equity loan, Wells Fargo later corrected the error, and Mrs. Karakus is now listed as sole borrower on the two loans. ( Id. ¶ 6).³

At the closing, the Karakuses signed various documents executing the transaction, including the loan application that Lattanzi had filled out for the borrowers. ( Id. ¶¶ 5, 11, 16, 67; McKenney Decl. (Dkt. No. 22), Exhs. I–M). Neither of the Karakuses took the time to read the documents they signed; nor did they ask for an adjournmentfor that purpose. (First Am. Compl ¶¶ 16; Pl. Opp. Mem. (Dkt. No. 39) at 11–12). Although Wells Fargo had serviced the Karakuses' original mortgage, Lattanzi provided them with copies the notice of the right to cancel (“NRC”) the mortgage refinancing loan on a TILA Model Form H–8, which applies to new relationship refinancing transactions, rather than a Model Form H–9, which applies to refinancing transactions with an existing creditor. (First. Am. Compl. ¶¶ 19–24, 50–51; McKenney Decl., Exh. I). Moreover, notwithstanding that plaintiffs signed statements attesting to the fact that they had received two copies each of the NRC form for the home equity loan, (McKenney Decl., Exh. K), they now allege that they received only one copy each. (First. Am. Compl. ¶¶ 32–33, 51).

Claiming TILA violations by Wells Fargo, the Karakuses purported to rescind the home equity loan by sending notices of rescission to the lender on June 24 and July 6, 2009. ( Id. ¶¶ 34–35). On September 25, 2009, Wells Fargo assigned its interest in the mortgage refinancing loan to Deutsche Bank, (McKenney Decl., Exh. E). On October 6, 2009, the Karakuses also sought to rescind the mortgaging refinancing loan by sending notice of rescission to Wells Fargo. On October 28, 2009, Deutsche Bank initiated an action in New York Supreme Court, Richmond County, to enforce the mortgage refinancing loan and foreclose on the Karakuses' home. See Deutsche Bank National Trust Co. as Trustee for RBSGC 20070–B v. Karakus, et al., Index No. 131881/09. ⁴ (McKenney Decl., Exh. F). That action remains pending. (Def. Mem. (Dkt. No. 37) at 3).

II. PROCEDURAL BACKGROUND

On November 2, 2009, the Karakuses initiated this lawsuit, asserting federal causes of action under TILA and the Credit Repair Organizations Act (“CROA”), as well as state law claims under New York's Deceptive Practices Act (“DPA”) and common law fraud. As relief, plaintiffs request that the Court enjoin the enforcement of their notes and mortgages and declare them unenforceable; that it terminate Wells Fargo's security interests in their home; and that it award damages, attorney's fees, costs, and other appropriate relief. (First. Am. Compl. ¶ 90, Request for Damages). Wells Fargo moved to dismiss pursuant to Rule 12(b)(6) (Dkt. Nos. 20). Plaintiffs not only opposed, but cross-moved to amend the pleadings. (Dkt. No. 26).

The Court granted plaintiffs' motion to amend and denied defendant's motion to dismiss. The Order granted 30 days leave to file the amended complaint. After plaintiffs filed their first amended complaint (Dkt. No. 33), defendant filed the instant motion to dismiss all claims. (Dkt. No. 36). Plaintiffs oppose defendant's motion and request leave to amend a second time. (Dkt. No. 42–43). Plaintiffs contend that their proposed amendments would augment their TILA allegations regarding the inadequacy of the NRC for the mortgage refinancing loan; present evidence of “widespread misfeasance” by Wells Fargo in its mortgage lending practices; specify injuries resulting from Wells Fargo's alleged fraud and DPA violation; and add a new basis for their fraud claim “stem[ming] from Wells Fargo's trying to make and then sell a large number of bad mortgage loans.” (Dkt. No. 42 at 1–2). Plaintiffs also ask to join Deutsche Bank as a defendant, “since that entity now owns the $265,000 mortgage loan [they] seek to rescind under TILA,” and to amend the pleadings accordingly. ( Id. at 1). Wells Fargo opposes plaintiffs' request on grounds of prejudice, bad faith, undue delay, and/or futility. (Dkt. No. 44).

DISCUSSION

I. STANDARD OF REVIEW

a. Rule 15(c)

Under Federal Rule of Civil Procedure 15(c), leave to amend a pleading “shall be freely given when justice so requires.” However, a trial court's discretion on this issue “is broad, and its exercise depends upon many factors, including undue delay, bad faith or dilatory motive ..., repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party ..., futility of amendment, etc.” Local 802, Associated Musicians of Greater N.Y. v. Parker Meridien Hotel, 145 F.3d 85, 89 (2d Cir.1998) (internal quotations omitted).

b. Rule 19(a)

Under Federal Rule of Civil Procedure 19(a), the Court must join a party in the following circumstances:

(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.

c. Rule 12(b)(6)

To survive a Rule 12(b)(6) 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 facially plausible claim includes factual content that “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. It is the factual allegations that are paramount; “a complaint need not pin plaintiff's claim for relief to a precise legal theory,” nor does it require “an exposition of [the complainant's] legal argument.” Skinner v. Switzer, –––U.S. ––––, ––––, 131 S.Ct. 1289, 1296, 179 L.Ed.2d 233 (2011). A court must presume the truth of all factual allegations in the complaint for purposes of Rule 12(b)(6) and draw all reasonable inferences in favor of the plaintiff. See Gorman v. Consolidated Edison Corp., 488 F.3d 586, 591–92 (2d Cir.2007). However, a court need not accept as true legal conclusions couched as factual allegations. Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986). Moreover, “a pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertions devoid of further factual enhancement.” Iqbal, 556...