Williams v. Berkshire Financial Group, Inc.

• Decision Date: 11 June 2007
• Docket Number: No. CV-06-5043 (BMC)(KAM).,CV-06-5043 (BMC)(KAM).
• Citation: 491 F.Supp.2d 320
• Parties: Lugard WILLIAMS, Plaintiff, v. BERKSHIRE FINANCIAL GROUP, INC., and "John and Jane Does 1-2" representing unknown and unidentified employees of Berkshire Financial Group, Inc.; Frank V. Carone, Stacey Golia, a/k/a Stacy Rosenblatt, Miri Zoarez, RCA Land Search Incorporated, and "John and Jane Does 3-4" representing unknown and unidentified employees of RCA Land Search Incorporated, Rodrigo Lirio, Esther Serrano, B Mayer Realty, Gosman Law, and "John and Jane Does 5-6" representing unknown and unidentified employees of Gosman Law, Defendants.
• Court: U.S. District Court — Eastern District of New York

491 F.Supp.2d 320

Lugard WILLIAMS, Plaintiff, v. BERKSHIRE FINANCIAL GROUP, INC., and "John and Jane Does 1-2" representing unknown and unidentified employees of Berkshire Financial Group, Inc.; Frank V. Carone, Stacey Golia, a/k/a Stacy Rosenblatt, Miri Zoarez, RCA Land Search Incorporated, and "John and Jane Does 3-4" representing unknown and unidentified employees of RCA Land Search Incorporated, Rodrigo Lirio, Esther Serrano, B Mayer Realty, Gosman Law, and "John and Jane Does 5-6" representing unknown and unidentified employees of Gosman Law, Defendants.

No. CV-06-5043 (BMC)(KAM).

United States District Court, E.D. New York.

June 11, 2007.

Michael S. Finkelstein, Timothy Feil, Finkelstein, Feil & Foxman, LLP, Bay Shore, NY, for Plaintiff.

Lawrence A. Kushnick, Vincent T. Pallaci, Kushnick & Associates, P.C., Melville, NY, Abraham Reingold, Esq., Brooklyn, NY, for Defendants.

MEMORANDUM DECISION AND ORDER

COGAN, District Judge.

This is an action under the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. § 2601 et seq. ("RESPA"), with additional state law claims under this Court's supplemental jurisdiction, alleging that defendants defrauded plaintiff out of the net proceeds from the sale of real property that he owned. Presently before the Court is defendants' motion to dismiss the second amended complaint (referred to below as the "complaint") under Fed. R.Civ.P. 12(b)(6).¹ Since plaintiff's claim, at most, is a common law fraud or conversion claim that is encompassed by neither the language nor the purpose of RESPA, the motion to dismiss is granted as to the RE SPA claims, and the remaining state law claims are dismissed as a matter of discretion.²

BACKGROUND

The following allegations are taken from the complaint and its annexed exhibits.

Plaintiff alleges that he was the owner of a parcel of real estate that was either in or near foreclosure. Knowing of his predicament, defendant Miri Zoarez, holding herself out as an employee of both defendant Berkshire Financial Group and defendant B Mayer Realty, approached plaintiff, advising him that she would find a straw man to purchase the property and give plaintiff an option to repurchase it within two years, thus saving him from foreclosure. Plaintiff alleges that this was "a scheme that Defendants have a history of pursuing.³

Plaintiff was concerned about this plan and "decided not to enter into same." Instead, plaintiff found his own straw purchaser for the property, defendant Royce D'Andrade. Plaintiff submitted his name to Zoarez, who had D'Andrade fill out a mortgage loan application. Zoarez reported back to plaintiff that D'Andrade had qualified for a mortgage loan originated by Berkshire.

The closing of the sale from plaintiff to D'Andrade occurred several months later. Zoarez was present at the closing, as were D'Andrade and other unnamed employees of Berkshire, and perhaps others (the complaint is unclear). At the closing, plaintiff signed a HUD-1 form that defendants had prepared, and which is annexed to the complaint. It disclosed that plaintiff would be receiving $37,524.31 in net proceeds from the sale (the "Net Equity"). Plaintiff alleges that Zoarez and defendant Stacy Golia ("S.Golia") confirmed for him that he would be receiving this amount, although it is not clear if this representation was made at, during, or after the closing, as the complaint does not allege that S. Golia was present at the closing.

The HUD-1 also disclosed that B Mayer Realty would be receiving a $16,432 broker's commission (the "Brokerage Commission") even though, the complaint alleges, Zoarez was not a licensed broker. The HUD-1 also breaks out various fees and costs collected by Berkshire for originating the loan, none of which plaintiff challenges specifically.

Also at the closing, the defendants collectively produced two bank checks from Washington Mutual. The checks were in the amount of $24,405.50 and $20,027.95 respectively, both payable to plaintiff. (Plaintiff obtained copies of these checks post-commencement of this action pursuant to a subpoena served on Washington Mutual.)

The allegations concerning these checks are a paradigm of confused pleading. The checks and their stubs, copies of which are annexed to the complaint, indicate that the "remitter" of the checks was D'Andrade. The complaint, however, alleges that "the funds were drawn from an account belonging to defendant Lenora Golia ... that the two checks were never negotiated ... that the funds were never withdrawn from the account, the transaction was voided, and the two checks that appeared at the closing were phony and worthless." As support for this allegation, plaintiff, in addition to annexing the checks to the complaint, cites to and annexes the transmittal letter from Washington Mutual that enclosed the checks. That letter, however, does not in any way support this allegation. It simply says that the checks payable to plaintiff were never cashed.

The complaint does not allege how it came about that plaintiff failed to walk away from the closing with these checks — since they were payable to him — and one would think he had to at least endorse them over to someone else. In any event, the complaint is clear enough that plaintiff did not get the Net Equity, or anything at all at the closing. He alleges that defendants Zoarez and S. Golia told him that he would receive it "in a couple of weeks because the moneys were currently being held in escrow to pay a utility bill," but he did not. After calling "frequently" to inquire about his money post-closing, Zoarez sent him a check for $1200, which bounced.

There are either one or two components to plaintiff's RE SPA damage claim. The most essential component relates to the failure to pay him the Net Equity. The allegation in the complaint is:

In furtherance of their scheme to defraud in direct violation of 12 USC § 2607(b) whereby, no person shall accept any portion, split or percentage of charges made or received, unearned fees, kickbacks or other things of value for services not directly performed, the Defendants violated same, in that they retained the proceeds of the property that was rightfully owed to Plaintiff.

The second component relates to the Brokerage Commission. As to that, plaintiff alleges that "Zoarez personally received $16,432.00 as an unlicensed agent and entity. Therefore, Defendants absconded with the funds in direct violation" of 12 U.S.C. § 2607(b). It is not clear whether plaintiff is claiming that the payment of the Brokerage Commission itself violates RE SPA, or whether the purpose of the allegation is merely to add weight to the characterization of Zoarez as a tortfeasor.

In either event, these two items together are more than the sum of their parts. In computing the amount owed to him, plaintiff not only seeks recovery of the Net Equity and the Brokerage Commission, but all of the closing costs disclosed on the HUD-1. He therefore measures his damages as the difference between the sales price, less preexisting mortgages, taxes, and judgments, which leaves a damage claim of $56,615.00.

DISCUSSION

I. Standard Under Rule 12(b)(6)

In Bell Atlantic v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, ___ L.Ed.2d ___ (2007), the Supreme Court rejected the oft-quoted language from Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957), that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." The Bell Atlantic Court held that:

[A]fter puzzling the profession for 50 years, this famous observation has earned its retirement. The phrase is best forgotten as an incomplete, negative gloss on an accepted pleading standard: once a claim has been stated adequately, it may be supported by any set of facts consistent with the allegations of the complaint. Conley, then, described the breadth of opportunity to prove what an adequate complaint claims, not the minimum standard of pleading to govern a complaint's survival.

___ U.S. ___, 127 S.Ct. at 1969. In place of the discredited language from Conley, the Court relied on other authority holding that:

While a complaint attacked on a Rule 12(b)(6) motion does not need detailed factual allegations, a plaintiffs obligation to provide the `grounds' of his `entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).

Id., 127 S.Ct. at 1959 (citations omitted). The Court summarized the applicable standard as requiring, at least, allegations "plausibly suggesting (not merely consistent with)," liability.

II. RESPA

Section 8(b) of RESPA, 12 U.S.C. § 2607(b), provides that "kilo person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed." Most of the cases raising issues under this provision have addressed the practice of imposing a "yield spread premium," by which an initial or additional broker's fee is recovered by increasing the interest rate that the lender would otherwise charge, and allocating the differential between the broker and the lender. See, e.g., Schneider v. Citicorp Mortgage, Inc., 982 F.Supp. 897 (E.D.N.Y.1997). A second frequent area of litigation is the propriety of imposing "overcharges," which are allegedly unreasonable or illegal fees to perform a service, or "markups," by which a settlement service provider pays a third party to perform the service for the provider and then charges the borrower...