Menashe v. Bank of New York
| Decision Date | 27 September 2011 |
| Docket Number | CIVIL NO. 10-00306 JMS/BMK |
| Parties | PERLE MENASHE, an individual, Plaintiff, v. BANK OF NEW YORK, a New York Banking corporation; BANK OF AMERICA, NA, a National Banking Association formerly known as COUNTRYWIDE BANK FSB; BAC HOME LOANS SERVICING LP, a Texas Limited Partnership, formerly known as COUNTRYWIDE HOME LOAN SERVICING, INC.; APPROVED MORTGAGE, INC., a Hawaii corporation; and DOES 1-100, inclusive, Defendants. |
| Court | U.S. District Court — District of Hawaii |
ORDER GRANTING IN PART
DEFENDANTS BANK OF NEW
YORK'S, BANK OF AMERICA,
N.A.'S, AND BAC HOME LOANS
SERVICING LP'S MOTION TO
DISMISS FIRST AMENDED
COMPLAINT FILED ON
NOVEMBER 22, 2010, AND
GRANTING LEAVE TO AMEND
ORDER GRANTING IN PART DEFENDANTS BANK OF NEW YORK'S,
On May 25, 2010, Plaintiff Perle Menashe ("Plaintiff") filed this action alleging various claims against Defendants Bank of New York, a New York banking corporation ("BONY"); Bank of America, NA, formerly known as Countrywide Bank FSB ("BOA"); BAC Home Loans Servicing LP, formerlyknown as Countrywide Home Loan Servicing, Inc. ("BAC"); and Approved Mortgage, Inc. ("Approved") (collectively, "Defendants") stemming from a mortgage transaction concerning real property located at 5105 Kapiolani Loop, Princeville, Hawaii 96722 (the "subject property").
Currently before the court is Defendants BONY, BOA, and BAC's ("Moving Defendants") Motion to Dismiss, in which they argue that Plaintiff's First Amended Complaint ("FAC") fails to state a cognizable claim. The FAC's basis for federal jurisdiction is 28 U.S.C. § 1331 (federal question) -- Count I asserts a violation of the Truth in Lending Act ("TILA"), and Count II asserts a violation of the Real Estate Settlement Procedures Act of 1974 ("RESPA"). Plaintiffs also assert fifteen state-law claims, invoking the court's supplemental jurisdiction, 28 U.S.C. § 1367(a). For the reasons set forth below, the court DISMISSES Counts I and II for failure to state a federal claim, but grants Plaintiff leave to amend. Because the court has only supplemental jurisdiction over the remaining claims, the court declines to address those state law claims until Plaintiff asserts a cognizable claim based on federal law.
As alleged in the FAC, on or about June 14, 2007, Plaintiff entered into a loan repayment and security agreement in the amount of $600,000 with Countrywide Bank FSB ("Countrywide"), secured by the subject property. Doc. No. 28, FAC ¶¶ 3, 14. The loan terms provide for a five-year fixed-payment schedule of interest only (resulting in a negative amortization loan and a maximum principal balance of $690,000), followed by a payment rate that would be adjusted annually. Id. ¶ 15.
This loan transaction was a refinancing of Plaintiff's earlier mortgage (which carried a monthly payment of $1,764.81), and Countrywide and her mortgage broker, Approved, convinced Plaintiff to refinance with Countrywide for a minimum payment of $2,217.72 per month. Id. ¶ 16. Countrywide and Approved did not disclose in any papers, however, that the payments may increase to $4,253.36 or even $6,171.68 per month. Id. ¶ 17. Countrywide and Approved also did not explain that Countrywide paid Approved a yield spread premium of $1,500, and that refinancing would cause Plaintiff $18,121.42 in prepayment penalties with her previous mortgagee, IndyMac. Id. ¶ 19. Further, although Countrywide and Approved determined that an appraisal was unnecessary, theHUD statement lists that Integris was the appraiser for an $800 charge. Id. ¶ 26. According to the FAC, the terms of the transaction stripped, in total, over $70,000 of equity from the subject property due to costs, fees, and prepayment penalties, making Plaintiff's ability to refinance unlikely. Id. ¶ 20.
The FAC asserts that in making and offering this loan, Countrywide and Approved relied on stated income, assets, and liabilities, and failed to make a reasonable determination of whether Plaintiff could truly qualify and repay the loan. Id. ¶¶ 25, 27. Approved also falsely inflated Plaintiff's income, and Countrywide based the loan on that inflated income and a credit check only. Id. ¶ 27. According to the FAC, if Countrywide and Approved used more accurate information, Plaintiff would not have qualified for the loan. Id. ¶ 29. Further, although Plaintiff was not approved for the full payment rate and could have qualified for more appropriate loans, Approved explained to Plaintiff that she would easily be able to refinance within the initial five-year term, omitting mention of the volatility of the loan product and the financial marketplace. Id. ¶¶ 18, 21-22.
In July 2008, Bank of America Corp. acquired Countrywide (and, apparently, the mortgage and note) and changed Countrywide's name to BOA. Id. ¶ 4. The loan was also apparently serviced by Countrywide Home LoanServicing, LP ("CHLS") -- the FAC asserts that Bank of America Corp. acquired CHLS and changed its name to BAC. Id. According to the FAC, BOA and BAC were under a duty to inspect and examine the practices of the originators of the loan such that any violations of law and/or illegalities with the loan flow to BOA and BAC. Id. ¶ 33.
Plaintiff's mortgage provides that Mortgage Electronic Registration Systems, Inc. ("MERS") is the mortgagee, solely as nominee for Countrywide. Doc. No. 50-4, Moving Defs.' Ex. B.1 At some point in time, MERS allegedly assigned the loan to BONY as nominee on behalf of Countrywide and/or BOA. Doc. No. 28, FAC ¶ 35. According to the FAC, this assignment is illegal because "[t]he actual owner of the note has not executed the Assignment to the new party" and "[a]n assignment of a mortgage in the absence of the assignment and physical delivery of the note will result in a nullity." Id. ¶ 36. The FAC further asserts that the use of MERS is "intentionally designed to mislead the borrower and benefit the lenders," and "MERS has no right to assign a power of sale to foreclose upon the subject property to a successor" such that Defendants have no legal standing toforeclose against Plaintiff. Id. 11 38-39.
Finally, the FAC asserts that the mortgage was securitized and as a result BONY does not own the mortgage note and is only a trustee, and BAC is only the servicer for the mortgage pool. Id. ¶¶ 40-42. According to the FAC, this securitization of the mortgage loan renders the mortgage unenforceable. Id. ¶¶ 43-44.
On May 25, 2010, Plaintiff filed this action. After BAC and BONY filed a Motion for Judgment on the Pleadings, Plaintiff filed the FAC on November 22, 2010. The FAC alleges seventeen claims titled (1) Violation of TILA, 15 U.S.C. § 1601, et. seq. (Against All Defendants) (Count I); (2) Violation of RESPA (Against All Defendants) (Count II); (3) Respondeat Superior Liability (Against BOA, BAC and BONY) (Count III); (4) Negligent or Wanton Hiring, Training or Retention (Against BOA, BAC and BONY) (Count IV); (5) Negligent Misrepresentation (Against BOA, BAC, and Approved) (Count V); (6) Civil Conspiracy (Against All Defendants) (Count VI); (7) Breach of Contract (Against Approved, BOA, and BAC) (Count VII); (8) Breach of Fiduciary Duty (Against BOA, BAC, and Approved) (Count VIII; (9) Common Law Fraud - Concealment (Against BOA, BAC, and Approved) (Count IX); (10) Common Law Fraud -Inducement (Against BOA, BAC, and Approved) (Count X); (11) Unfair and Deceptive Acts and Practices - Hawaii Revised Statutes ("HRS") § 480-2 (Against Approved, BAC, BOA, and BONY) (Count XI); (12) Improper Restrictions as a Result of Securitization (Against All Defendants) (Count XII); (13) Wrongful Conversion of Note (Against All Defendants) (Count XIII); (14) The Note and Mortgage Are Unenforceable Because the Mortgagor Never Consented to the Securitization (Against All Defendants) (Count XIV); (15) The Restrictions Imposed Upon the Modification of the Mortgage are a Clog Upon the Equity of Redemption (Against Defendants Claiming Any Interest in the Subject Property) (Count XV); (16) Quiet Title (Against Defendants Claiming Any Interest in the Subject Property) (Count XVI); and (17) The Unenforceability of the Note and Mortgage Requires the Court to Declare a Constructive Trust or Mortgage Trust (Against Defendants Claiming Any Interest in the Subject Property) (Count XVII).
On July 6, 2011, Moving Defendants filed their Motion to Dismiss. On September 2, 2011, Plaintiff filed a Motion to Strike the Motion to Dismiss, or in the Alternative, Memorandum in Opposition.2 On September 12, 2011, Moving Defendants filed a Reply. A hearing was held on September 26, 2011.
Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss a claim for "failure to state a claim upon which relief can be granted[.]"
"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, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Weber v. Dep't of Veterans Affairs, 521 F.3d 1061, 1065 (9th Cir. 2008). This tenet -- that the court must accept as true all of the allegations contained in the complaint -- "is inapplicable to legal conclusions." Iqbal, 129 S. Ct. at 1949. Accordingly, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. (citing Twombly, 550 U.S. at 555). Rather, "[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. (citing Twombly, 550 U.S. at 556). Factual allegations that only permit the court to infer "the mere...
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