Proctor v. Metropolitan Money Store Corp.

• Decision Date: 29 September 2008
• Docket Number: No. RWT 07cv1957.,RWT 07cv1957.
• Parties: Melvin J. PROCTOR, Jr., et al., Plaintiffs v. METROPOLITAN MONEY STORE CORP., et al., Defendants.
• Court: U.S. District Court — District of Maryland

Page 724

579 F.Supp.2d 724

Melvin J. PROCTOR, Jr., et al., Plaintiffs v. METROPOLITAN MONEY STORE CORP., et al., Defendants.

No. RWT 07cv1957.

United States District Court, D. Maryland.

September 29, 2008.

COPYRIGHT MATERIAL OMITTED

Scott C. Borison, Janet Sue Legg, Legg Law Firm LLC, Frederick, MD, Peter A. Holland, The Holland Law Office PC, Annapolis, MD, Phillip R. Robinson, Civil Justice Inc., Baltimore, MD, for Plaintiffs.

Leticia Nicholls, Takoma Park, MD, pro se.

Sidney S. Friedman, Rosemary E. Allulis, Weinstock Friedman and Friedman PA, James K. Archibald, John Thomas Prisbe, Gregory Wasylak, Venable LLP, Baltimore, MD, Erwin Roderick E. Jansen, Jr., The Law Offices of Erwin R.E. Jansen LLC, Lanham, MD, Alvin I. Frederick, Daniel R. Hodges, Eccleston and Wolf PC, Hanover, MD, John M. Alten, John J. Haggerty, Ulmer and Berne LLP, Cleveland, OH, Joseph John Bottiglieri, Bonner Kiernan Trebach and Crociata, Washington, DC, for Defendants.

MEMORANDUM OPINION

ROGER W. TITUS, District Judge.

Foreclosure is a terrifying prospect for any homeowner. Having fallen behind on mortgage payments and unable to make ends meet, fearful homeowners facing foreclosure are desperate to keep their homes but uncertain where to turn for help. As the rate of foreclosures has increased—reaching crisis proportions in recent months—so have instances of scam artists seeking to take advantage of these vulnerable homeowners.¹ Offering to stop foreclosures and allow owners to remain in their homes, the "foreclosure rescue scam" provides what seems like a solution to the immediate problem. Unfortunately, the victims eventually realize that the "rescuers" have left them in a much worse position than before, often stripped of their home equity and once again facing the prospect of losing of their home.²

Plaintiffs Melvin Proctor and Nadine McKenzie-Proctor ("Proctors"), Delores and Ronnell Wallace ("Wallaces"), and Dina Simon claim that they have been subjected to just such a foreclosure rescue scam. In their case, a group of "rescuers" allegedly duped them into transferring title to their homes, stripped Plaintiffs of their substantial home equity through excessive fees, and left them with the unattainable option of repurchasing their homes at a price well above the amount that they owed in the first place. As a result, Plaintiffs have filed a class action complaint³ setting forth various claims under both federal and state law against numerous Defendants that they allege defrauded them.⁴

The Defendants fall into roughly four classes. First, at the heart of the alleged scam are the Defendants Joy J. Jackson, Kurt Fordham, and Jennifer McCall, along with the corporate entities allegedly used by them to accomplish the scheme, Metropolitan Money Store Corporation ("Metropolitan") and Fordham and Fordham Investment Group, Limited ("Fordham & Fordham"). Second, Plaintiffs name certain "straw buyers" that were allegedly recruited to incur mortgage loans and take title to the homes, including Leticia Nicholls and Jamie A. Clark. Third, Plaintiffs have brought claims against the settlement agents and associated employees of the companies that allegedly closed the transactions: Valerina Tomlin and her settlement company, RTE Title & Escrow, LLC ("RTE"), as well as Alexander J. Chaudhry, Ali Farahpour, and Wilbur Ballesteros, all of whom were employed by Sussex Title, LLC, f/k/a Cap Title, LLC ("Sussex"). Finally, Plaintiffs name two title insurance companies, Chicago Title Insurance Company ("Chicago") and Southern Title Insurance Corporation ("Southern")(together, the "Title Companies"), that provided title insurance for certain of the transactions and which are alleged to be liable as principals for the actions of the settlement agents.

Before the Court are motions to dismiss Plaintiffs' Amended Complaint filed by four of the Defendants. Southern and Chicago have filed separate motions to dismiss, each asserting similar grounds that reflect their similar positions vis-a-vis Plaintiffs. Farahpour and Chaudhry—both allegedly involved in closing certain of the transactions at issue—have also filed separate motions to dismiss, Farahpour as to the entire Amended Complaint and Chaudhry as to Count VII. Both Farahpour and Chaudhry, however, have asserted at least one similar argument for dismissal, which is discussed below. For the reasons that follow, the Court will grant all four motions to dismiss and will dismiss the Amended Complaint as to all four Defendants. It will, however, grant leave to Plaintiffs to amend their Complaint a second time as to Defendants Chaudhry and Farahpour.

I.

On July 24, 2007, Plaintiffs filed their Original Complaint. Following a first round of preliminary motions, the Court (1) dismissed all claims against Chicago; (2) dismissed certain claims against Sussex and Chaudhry; and (3) granted Plaintiffs leave to file an Amended Complaint.⁵ Plaintiffs filed their Amended Complaint on January 21, 2008. Aside from adding Defendants Ballesteros and Farahpour, and dropping Sussex,⁶ the Amended Complaint essentially brings the same claims as the Original Complaint, incorporating its previously separate claim for respondeat superior as a separate theory within the other counts.⁷

On February 4, 2008, Chaudhry filed his Motion to Dismiss Count VII of Plaintiffs' First Amended Complaint for Failure to State a Claim Upon which Relief Can Be Granted. (Paper No. 72). On February 21, both Chicago and Southern filed their separate Motions to Dismiss Amended Complaint. (Paper Nos. 79 & 85). On April 4, 2008, Farahpour filed a Motion to Dismiss Plaintiffs' First Amended Complaint for Failure to Plead Fraud with Particularity, and Failure to State a Claim Upon Which Relief Can Be Granted. (Paper No. 105). The Court heard argument on these motions at a hearing held on June 20, 2008.⁸

II.

Although Plaintiffs have set forth lengthy allegations in their Amended Complaint, only an abbreviated review of the alleged facts is necessary at this time, given the grounds upon which the Court's decision rests. In sum, Plaintiffs allege

the single largest mortgage scam in the Mid-Atlantic history which has bilked homeowners of millions of dollars of lost equity, threatens these families with imminent foreclosure, and involved the willful participation of so-called real estate professionals....

Am. Compl. ¶ 1. The scam allegedly targeted vulnerable homeowners, especially African Americans, "who were already in dire financial straits, and who generally had few assets aside from the substantial equity in their home." Id. ¶¶ 41-42. Metropolitan allegedly advertised to distressed homeowners, arranged for straw purchasers to obtain mortgages for the purchase of title to the residences, and represented to homeowners that the transaction would help repair their credit. Id. ¶ 12. According to Plaintiffs, individual Defendants Jackson, McCall, and Mr. Fordham were allegedly involved personally in operating the scam. Id. ¶¶ 12, 21-23.

Arranging for mortgages in amounts "substantially more" than the amounts owed, Metropolitan—with the assistance of Fordham & Fordham—allegedly would pay off the defaulted mortgage and retain the excess funds for itself and others involved. Id. ¶¶ 12-13. Such equity would have gone to the homeowner had the home actually gone to foreclosure or been sold on the open market. Id. ¶ 65. Plaintiffs were apparently told that they could reside in the homes for a year or more, with the option to repurchase the properties at the end of the period, id. ¶ 44 & Ex. 5, only to discover at the end of the period that their equity had been stripped and they would need to borrow much larger amounts than they had previously owed, id. ¶¶ 49, 71 & Ex. 10.

Jackson, McCall, and Mr. Fordham allegedly used Sussex—operated by Chaudhry, Farahpour, and Ballesteros—as their settlement and title insurance agent until August 2006, when they switched to RTE, operated by Tomlin. Id. ¶¶ 14-15, 24-27, 50. In the process, these agents allegedly prepared false HUD-1 settlement statements showing that expenses were being paid by the buyer when they were actually being paid by the seller, misappropriated and illegally disbursed funds, and structured the refinance transactions improperly as sales. Id. ¶¶ 50, 53-54, 58-60, 62, 70-72 & Ex. 10. The illegal disbursement of funds was allegedly accomplished by either (1) delivering checks—which were made payable to Plaintiffs—to Metropolitan, Fordham and Fordham, Jackson, McCall, and Mr. Fordham, who would then endorse the checks with forged signatures or (2) directly wiring the funds to bank accounts of the same Defendants. Id. ¶¶ 53, 59.

Sussex, Chaudhry, Farahpour, and Ballesteros allegedly conducted the settlements for the Proctor and Simon transactions, using the United States Mail and electronic wires to transfer and receive funds and documents related to the transaction. Id. ¶¶ 83-85, 140, 143-44. In these transactions, these Defendants allegedly failed to comply with the lender's closing instructions by, e.g., following Metropolitan's and/or Fordham & Fordham's closing instructions, not verifying down payment funds, accepting down payment funds from someone other than the borrower, conducting a settlement without the borrower present, failing to seek the lender's prior approval for conducting the transaction on behalf of the borrower through a power of attorney, making amendments to the disbursements on the HUD-1 settlement statement without the lender's prior approval, and intentionally preparing a false HUD-1 settlement statement. Id. ¶¶ 84, 142 & Ex. 12.

Similarly, with respect to the Wallace transaction, Plaintiffs allege that RTE and Tomlin used the electronic wires to receive funds and documents for the transaction. Id. ¶¶ 111, 119-21. RTE and Tomlin allegedly failed to comply with the lender's closing instructions by, e.g., conducting a closing without the borrower being present, failing...