Lieberman v. Emigrant Mortg. Co.

• Decision Date: 02 June 2006
• Docket Number: Civil Action No. 3:05-cv-1166 (JCH).
• Citation: 436 F.Supp.2d 357
• Court: U.S. District Court — District of Connecticut
• Parties: Ilene LIEBERMAN, on behalf of herself and all others similarly situated, Plaintiffs, v. EMIGRANT MORTGAGE COMPANY, Defendant.

436 F.Supp.2d 357

Ilene LIEBERMAN, on behalf of herself and all others similarly situated, Plaintiffs, v. EMIGRANT MORTGAGE COMPANY, Defendant.

Civil Action No. 3:05-cv-1166 (JCH).

United States District Court, D. Connecticut.

June 2, 2006.

COPYRIGHT MATERIAL OMITTED

Stephen James Curley, Law Offices of Stephen J. Curley, Stamford, CT, for Plaintiff.

Jeffrey M. Knickerbocker, Leslee B. Hill, Robert A. Ziegler, Law Office of Rob

A. Ziegler, Plainville, CT, for Defendant.

RULING ON DEFENDANT'S MOTION TO DISMISS [DOC. NO. 14]

HALL, District Judge.

The plaintiff, Ilene Lieberman, who is a resident of Connecticut, brings this putative class action for declaratory relief, breach of contract, unjust enrichment, and violation of the Connecticut Unfair Trade Practices Act ("CUTPA"), Conn. Gen.Stat. § 42-110 et seq., against the defendant, Emigrant Mortgage Company, Inc. ("Emigrant Mortgage"), a corporation with its principal place of business in New York. The suit concerns a loan agreement that the plaintiff had entered into with Emigrant Mortgage. Emigrant Mortgage removed this action from the Connecticut Superior Court for the Judicial District of Stamford, pursuant to 28 U.S.C. §§ 1441 and 1446. Jurisdiction is based on the diversity of citizenship of the parties, pursuant to 28 U.S.C. § 1332.

Emigrant Mortgage has moved to dismiss Lieberman's action pursuant to Fed. R.Civ.P. 12(b)(6), arguing, inter alia, that Lieberman's complaint fails to state claims upon which relief can be granted. For the following reasons, Emigrant Mortgage's motion to dismiss is GRANTED in part and DENIED in part.

I. FACTUAL BACKGROUND¹

Lieberman is a resident of Weston, Connecticut. In 2003, Lieberman contracted with Emigrant Mortgage for a $750,000.00 loan at a variable rate of interest, which was initially set at 5.875% per annum. The loan was secured by a mortgage on a residence owned by Lieberman. Contained within the loan agreement and attached riders were provisions providing that, in the case of a default, the interest rate on the loan would increase to 18% and Emigrant Mortgage would have the right to accelerate the loan.² Lieberman alleges that she is not an attorney and is not "familiar with the intricacies of housing finance under Connecticut law." Class Action Complaint [Doc. No. 1], 1123. She also alleges that all documents pertaining to the loan were prepared by Emigrant Mortgage and that Emigrant Mortgage never indicated any willingness to negotiate or amend the terms and conditions of the loan agreement.

Payment on the loan commenced in October 2003, and some time after that date Lieberman became unable to make regular monthly payments on the loan. In May 2004, Emigrant Mortgage notified Lieberman, by letter, that it was accelerating the payment schedule of the loan and imposing the default interest rate. In August 2004, Emigrant Mortgage brought an action in Connecticut against Lieberman to foreclose the mortgage and to collect on the loan. Lieberman alleges that, "under the duress" of the 2004 Action, she paid Emigrant Mortgage $65,497.50 in default interest, late charges, attorney's fees and other costs. Id. at ¶ 27.

In November 2004, Emigrant Mortgage again notified Lieberman that it was accelerating the payment schedule for the loan agreement and imposing the default interest rate. In February 2005, Emigrant Mortgage brought another action in Connecticut to foreclosure on the mortgage and collect on the loan. Lieberman alleges that "under the duress" of the 2005 action, she paid Emigrant Mortgage $93,607.32 in default interest, late charges, attorney's fees, and other costs.

Lieberman asserts that the terms of the loan agreement were usurious, unconscionable, and constituted an unenforceable penalty for breach of contract. On the basis of these theories, Lieberman asserts claims for breach of contract, breach of implied contract, unjust enrichment, breach of the duty of good faith and fair dealing, and a violation of CUTPA. Lieberman also asserts these claims on behalf of all persons in Connecticut who executed promissory notes with Emigrant Mortgage that contained the same default interest rider at issue here. Emigrant Mortgage moves pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss Lieberman's suit, arguing that she has failed to state claims upon which relief can be granted.

II. LEGAL STANDARD

A motion to dismiss filed pursuant to Rule 12(b)(6) can be granted only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). See also Reed v. Town of Branford, 949 F.Supp. 87, 89 (D.Conn. 1996). In considering such a motion, the court accepts the factual allegations alleged in the complaint as true and draws all inferences in the plaintiff's favor. 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).

"In considering a motion to dismiss .. . a district court must limit itself to facts stated in the complaint or in documents attached to the complaint as exhibits or incorporated in the complaint by reference . . . [and review all allegations] in the light most favorable to the non-moving party." Newman & Schwartz v. Asplundh Tree Expert Co., Inc., 102 F.3d 660, 662 (2d Cir.1996). "While the pleading standard is a liberal one, bald assertions and conclusions of law will not suffice." Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir.1996). Rule 8 of the Federal Rules of Civil Procedure provides that a complaint "shall contain ... a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2); see also Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002).

III. DISCUSSION

A. The Plaintiff's Legal Theories

Lieberman's individual causes of actions are each premised on her theories that the loan agreement was defective because its terms were usurious, unconscionable, and constituted an unenforceable penalty for breach. The court will consider these theories in turn.

1. Usury

Lieberman asserts that the terms of the default interest rider are usurious under Conn.Gen.Stat. § 37-4. The court previously addressed whether a default interest rider identical to the one in the instant case was violative of section 37-4 in Pierce v. Emigrant Mortgage Co., 304CV1767JCH, 2005 WL 2406007 (D.Conn. Sept.29, 2005). In Pierce, the court found that, while there was no decisive Connecticut case law on the issue, the weight of authority from other jurisdictions, as well as the analysis in Scientific Products v. Cyto Medical Laboratory, Inc., 457 F.Supp. 1373 (D.Conn.1978), indicated that, under Connecticut law, section 37-4 does not apply to the post-default interest rates at issue. 2005 WL 2406007, at *3. In reaching this conclusion, the court considered and discussed the cases that Lieberman cites for support of her position that the default interest rider that was incorporated into her loan agreement violated section 37-4. Id. at *3-4. In particular, the court found that the holding of the Montanta Supreme Court in Scarr v. Boyer, 250 Mont. 248, 818 P.2d 381 (1991) was inapplicable to the Connecticut law at issue because of the disparate language of Connecticut and Montana's usury statutes. Id. at *4.

Therefore, the court finds that the default interest rider at issue in the instant case was not violative of Conn.Gen.Stat. § 37-4 for the reasons discussed in Pierce. Emigrant Mortgage's motion to dismiss is GRANTED to the extent that Lieberman's complaint asserts claims on the basis of Conn.Gen.Stat. § 37-4.

2. Unconscionability

Lieberman also asserts the terms of the loan agreement were unconscionable.

The purpose of the doctrine of unconscionability is to prevent oppression and unfair surprise. As applied to real estate mortgages, the doctrine of unconscionability draws heavily on its counterpart in the Uniform Commercial Code which, although formally limited to transactions involving personal property, furnishes a useful guide for real property transactions. As Official Comment 1 to § 2-302 of the Uniform Commercial Code suggests, the basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. Unconscionability is determined on a case-by-case basis, taking into account all of the relevant facts and circumstances.

Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 411-412, 867 A.2d 841 (Conn.App.2005) (quoting Family Financial Services, Inc. v. Spencer, 41 Conn. App. 754, 762-63, 677 A.2d 479 (1996)); see also Cheshire Mortgage Service, Inc. v. Montes, 223 Conn. 80, 87-89, 612 A.2d 1130 (1992). "Before a court strikes down as unconscionable the terms of a note that the legislature has deemed not to be illegal ... the court should permit a factual showing of the circumstances that led to the inclusion of the challenged terms in the note or mortgage." Hamm v. Taylor, 180 Conn. 491, 494-495, 429 A.2d 946 (Conn. 1980) (internal citation omitted). "The financial circumstances of the borrower, the increased risk associated with a second mortgage, and the income-producing capacity of the mortgaged property are some of the questions of fact that might appropriately be explored to shed light on whether a designated interest rate is or is not unconscionable." Id.

Emigrant Mortgage makes several arguments in support of its position that Lieberman's complaint fails to state a claim for relief on the basis of unconscionability. First, Emigrant Mortgage argues that Lieberman has failed to include in her complaint factual allegations of the type that have been found by courts in...