Menashe v. Bank of N.Y.

• Decision Date: 06 February 2012
• Docket Number: Civil No. 10–00306 JMS/BMK.
• Citation: 850 F.Supp.2d 1120
• 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

850 F.Supp.2d 1120

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.

Civil No. 10–00306 JMS/BMK.

United States District Court, D. Hawai‘i.

Feb. 6, 2012.

Paul J. Sulla, Jr., Hilo, HI, for Plaintiff.

Mitsuko Takahashi, Patricia J. McHenry, Cades Schutte, Honolulu, HI, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS BANK OF NEW YORK'S, BANK OF AMERICA, N.A.'S, AND BAC HOME LOANS SERVICING LP'S MOTION TO DISMISS SECOND AMENDED COMPLAINT FILED ON OCTOBER 12, 2011

J. MICHAEL SEABRIGHT, District Judge.

I. INTRODUCTION

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 (“BANA”); and BAC Home Loans Servicing LP, formerly known as Countrywide Home Loan Servicing, Inc. (“BAC”) (collectively, “Defendants”) stemming from a mortgage transaction concerning real property located at 5105 Kapiolani Loop, Princeville, Hawaii 96722 (the “subject property”).

Plaintiff filed her First Amended Complaint (“FAC”) after Defendants filed a Motion for Judgment of the Pleadings on the Complaint, and Plaintiff filed her Second Amended Complaint (“SAC”) after the court dismissed the federal claims and declined jurisdiction over the remaining state law claims.¹See Menashe v. Bank of New York, 2011 WL 4527384, at *8–9 (D.Haw. Sept. 27, 2011). The SAC asserts a slew of claims for violations of the Real Estate Settlement Procedures Act of 1974 (“RESPA”) and state law claims.

Currently before the court is Defendants' Motion to Dismiss, in which they argue that the SAC fails to state a cognizable claim. Based on the following, the court GRANTS in part and DENIES in part Defendants' Motion to Dismiss.

II. BACKGROUND

A. Factual Background

As alleged in the SAC, 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. 60, SAC ¶¶ 3, 22. 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. ¶ 23.

This loan transaction was a refinancing of Plaintiff's earlier mortgage (which carried a monthly payment of $1,764.81), and Countrywide convinced Plaintiff to refinance with Countrywide for a minimum payment of $2,217.72 per month. Id. ¶ 24. Countrywide did not disclose in any papers, however, that the payments may increase to $4,253.36 or even $6,171.68 per month. Id. ¶ 25. Countrywide also did not explain that it paid 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. ¶ 27. Further, although Countrywide determined that an appraisal was unnecessary, the HUD statement lists that Integris was the appraiser for an $800 charge. Id. ¶ 34. According to the SAC, the terms of the transaction stripped, in total, over $70,000 of equity from the subject property due to costs, fees, and prepaymentpenalties, making Plaintiff's ability to refinance unlikely. Id. ¶ 28.

The SAC asserts that in making and offering this loan, Countrywide 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. ¶¶ 33, 35. Approved, the mortgage broker, also falsely inflated Plaintiff's income, and Countrywide based the loan on that inflated income and a credit check only. Id. ¶ 35. According to the SAC, if Countrywide used more accurate information, Plaintiff would not have qualified for the loan. Id. ¶ 36. Further, although Plaintiff was not approved for the full payment rate and could have qualified for more appropriate loans, Countrywide 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. ¶¶ 26, 29–31. The SAC asserts that Countrywide breached its fiduciary duty to place Plaintiff into a loan that she could afford. Id. ¶¶ 32, 37. Indeed, since entering into the loan transaction, Plaintiff has had difficulty making her payments, and has begun to fall behind after filing this action such that she is facing imminent default and foreclosure. Id. ¶¶ 38–39.

In July 2008, Bank of America Corp. acquired Countrywide (and, apparently, the mortgage and note) and changed Countrywide's name to BANA. Id. ¶ 4. The loan was also apparently serviced by Countrywide Home Loan Servicing, LP (“CHLS”)—the SAC asserts that Bank of America Corp. acquired CHLS and changed its name to BAC. Id. According to the SAC, BANA 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. ¶ 49.

Plaintiff's mortgage provides that Mortgage Electronic Registration Systems, Inc. (“MERS”) is the mortgagee, solely as nominee for Countrywide. Doc. No. 63–4, Defs.' Ex. B.² At some point in time, MERS allegedly assigned the loan to BONY as nominee on behalf of Countrywide and/or BANA. Doc. No. 60, SAC ¶ 51. According to the SAC, 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. ¶ 52. The SAC 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 to foreclose against Plaintiff. Id. ¶¶ 54–55.

The SAC 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. ¶¶ 56–58. According to the SAC, this securitization renders the mortgage unenforceable. Id. ¶¶ 59–60.

Finally, as to Defendants' alleged RESPA violations, the SAC asserts that on December 21, 2009, Plaintiff, through her attorney, mailed to BANA a qualified written request (“QWR”) requesting “specific servicing related information.” Id. ¶ 40. The December 21, 2009 letter, attached to the SAC as Exhibit 1, requests “a ‘certified’ copy of the original promissory note that was signed,” and “a copy of the appraisal taken at the time of the loan.” Doc. No. 60–1, SAC Ex. 1. On December 31, 2009, BANA requested written authorization from Plaintiff, which Plaintiff returned on January 22, 2010. Doc. No. 60, SAC ¶ 41. On March 18, 2010, Plaintiff renewed her request for the information sought in the December 21, 2009 letter, and additionally requested (1) nineteen categories of documents concerning the mortgage transaction, servicing of the mortgage, sales and/or assignments of the mortgage, and correspondence to Plaintiff, and (2) that BANA answer eleven different questions seeking information on, among other things, the names of the holder(s) of the note and mortgage, the location of the note and mortgage, calculations and rates on the mortgage, and any pooling arrangements of the mortgage loan. Doc. No. 60–2, SAC Ex. 2.

BANA responded in an April 6, 2010 letter by providing a summary of the loan, yet declined all other requests as going “beyond that which is available through a [QWR] made under 12 U.S.C. § 2605(B).” Doc. No. 60–3, SAC Ex. 3. BANA further explained that “Countrywide/Bank of America did not originate the subject loan ... [and] is not responsible for any misunderstanding or lack of communication between the borrower and originating entity.” Id. BANA also explained that “a credit block was placed while the issues in your letter were addressed,” and that “we will not remove the negative credit reporting from our customer's credit file.” Id. According to the SAC, BANA has yet to provide a complete response to Plaintiff's QWRs, causing Plaintiff damages. Id. ¶¶ 46–47.

B. Procedural Background

On May 25, 2010, Plaintiff filed this action against Defendants and Approved. After BAC and BONY filed a Motion for Judgment on the Pleadings, Plaintiff filed the FAC on November 22, 2010. Defendants subsequently filed a Motion to Dismiss the FAC, and on September 27, 2011, the court dismissed Plaintiff's federal claims with leave for Plaintiff to amend. The September 27, 2011 Order further declined jurisdiction over Plaintiff's remaining state law claims until Plaintiff stated a claim based on federal law (both Plaintiff and Approved are citizens of Hawaii).

On October 11, 2011, Plaintiff filed her SAC, asserting claims against only BONY, BANA, and BAC (Plaintiff declined to continue alleging claims against Approved). The SAC asserts sixteen claims titled: (1) Violation of RESPA (Against BANA) (Count I); (2) Respondeat Superior Liability (Against BANA, BAC and BONY) (Count II); (3) Negligent or Wanton Hiring, Training or Retention (Against BANA, BAC and BONY) (Count III); (4) Negligent Misrepresentation (Against BANA, BAC, and Countrywide) (Count IV); (5) Civil Conspiracy (Against All Defendants) (Count V); (6) Breach of Contract(Against Countrywide, BANA, and BAC) (Count VI); (7) Breach of Fiduciary Duty (Against BANA, BAC, and Countrywide) (Count VII); (8) Common Law Fraud—Concealment (Against BANA, BAC, and Countrywide) (Count VIII); (9) Common...