Zink v. First Niagara Bank, N.A.

• Decision Date: 09 May 2014
• Docket Number: No. 13–CV–1076–A.,13–CV–1076–A.
• Citation: 18 F.Supp.3d 363
• Parties: Jeffrey ZINK, on behalf of himself and all others similarly situated, Plaintiffs, v. FIRST NIAGARA BANK, N.A., Defendant.
• Court: U.S. District Court — Western District of New York

18 F.Supp.3d 363

Jeffrey ZINK, on behalf of himself and all others similarly situated, Plaintiffs

v.FIRST NIAGARA BANK, N.A., Defendant.

No. 13–CV–1076–A.

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

Signed May 9, 2014.

D. Gregory Blankinship, Jeremiah Frei–Pearson, Todd S. Garber, Shin Young Hahn, Meiselman Packman Nealon Scialabba & Baker P.C., White Plains, NY, for Plaintiffs.

Jeffrey Thomas Fiut, Cynthia Giganti Ludwig, Jodyann Galvin, Hodgson Russ LLP, Buffalo, NY, for Defendant.

ORDER

RICHARD J. ARCARA, District Judge.

This case was referred to Magistrate Jeremiah J. McCarthy for pretrial proceedings pursuant to 28 U.S.C. § 636(b)(1). On January 27, 2014, Magistrate Judge McCarthy filed an Amended Report and Recommendation (Dkt. No. 51) recommending that defendant First Niagara Bank, N.A.'s, motion to dismiss (Dkt. No. 37) plaintiff Jeffrey Zink's Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(6) be denied. Defendant First Niagara filed objections to the Amended Report and Recommendation primarily on the ground that federal law preempts plaintiff Zink's state law civil penalty claim for late presentment of a satisfaction of mortgage. (Dkt. No. 52).

The Court carefully reviewed the Amended Report and Recommendation, the pleadings submitted by the parties, and, after oral argument April 11, 2014, it is hereby

ORDERED, upon de novo review of defendant First Niagara's objections pursuant to 28 U.S.C. § 636(b)(1) to the Amended Report and Recommendation, and for all the reasons stated in the Amended Report and Recommendation, defendant's motion to dismiss (Dkt. No. 37) is denied.

The case is recommitted to Magistrate Judge McCarthy pursuant to the terms of the Court's prior referral order for further proceedings.

IT IS SO ORDERED.

AMENDED REPORT AND RECOMMENDATION

JEREMIAH J. McCARTHY, United States Magistrate Judge.

Defendant First Niagara Bank, N.A. (“First Niagara”) has moved to dismiss plaintiff's Amended Complaint pursuant to Fed.R.Civ.P. (“Rule”) 12(b)(6) [37].¹ That motion, being dispositive, has been referred to me by Hon. Richard J. Arcara for a Report and Recommendation [38]. Oral argument was held on January 13, 2014 [46], after which the parties made supplemental submissions [48, 49]. For the following reasons, I recommend that the motion be denied.

BACKGROUND

Plaintiff Jeffrey Zink seeks to maintain a class action to recover penalties from First Niagara, pursuant to New York's Real Property Law (“RPL”) § 275(1) and Real Property Actions and Proceedings Law (“RPAPL”) § 1921(1), for its allegedly “systematic failure to timely present to the county clerks of New York State proof that mortgages have been satisfied”. Amended Complaint [21], ¶ 1.

Both statutes contain the following provision: “Failure by a mortgagee to present a certificate of discharge for recording shall result in the mortgagee being liable to the mortgagor in the amount of five hundred dollars if he or she fails to present such certificate within thirty days [after payment] ... in the amount of one thousand dollars if he or she fails to present a certificate of discharge for recording within sixty days and ... in the amount of one thousand five hundred dollars if he or she fails to present a certificate of discharge for recording within ninety days.”

Zink alleges that he obtained a mortgage for property in the Town of Cortlandt from HSBC Mortgage Corporation (USA) which was subsequently assigned to First Niagara (Amended Complaint [21], ¶ 12), and that First Niagara “failed to present a certificate or [sic ] discharge for recording within ninety days of the date upon which the full amount of principle [sic ] and interest was paid on the mortgage, as evidenced by the fact that the Satisfaction of Mortgage was not recorded for more than one-hundred and thirty-five (135) days after the discharge date” (id., ¶¶ 25, 32). He further alleges that “based on a review of county records, First Niagara appears to have failed to timely file mortgage satisfactions in thousands, if not tens of thousands, of instances” (id., ¶ 19).

In moving to dismiss, First Niagara argues that Zink's statutory claims are preempted by the National Banking Act (“NBA”), 12 U.S.C. § 1 et seq., and a regulation promulgated thereunder by the Office of the Comptroller of the Currency (“OCC”), 12 C.F.R. § 34.4(a)(10) (First Niagara's Memorandum of Law [37–1], Point I); that Zink lacks standing to pursue his claims because his satisfaction of mortgage has already been recorded (id., Point II); and finally, that Zink fails to properly allege that First Niagara violated RPL § 275 or RPAPL § 1921 (id., Point III).

ANALYSIS

A. Does Diversity Jurisdiction Exist?

Before addressing the merits of the motion, I must first consider whether diversity jurisdiction exists. Although First Niagara's motion does not raise this issue, I have an independent obligation to determine whether this court has jurisdiction to proceed. See Henderson ex rel. Henderson v. Shinseki, ––– U.S. ––––, 131 S.Ct. 1197, 1202, 179 L.Ed.2d 159 (2011) (“Courts do not usually raise claims or arguments on their own. But federal courts have an independent obligation to ensure that they do not exceed the scope of their jurisdiction, and therefore they must raise and decide jurisdictional questionsthat the parties either overlook or elect not to press”).

Zink alleges that “[j]urisdiction in this civil action is authorized pursuant to 28 U.S.C. § 1332(d)(2)(A), as minimal diversity exists, there are more than 100 Class members, some of whom are not citizens of New York State, and the amount in controversy is in excess of $5 million”. Amended Complaint [12], ¶ 5. Although no class has yet been certified, 28 U.S.C. § 1332(d)(8) provides that “[t]his subsection shall apply to any class action before or after the entry of a class certification order”.

Therefore, resolution of the issue of diversity jurisdiction must await the determination of whether any members of the proposed class are citizens of states other than New York, whether there are at least 100 members in the class, and whether the amount in controversy exceeds $5 million. Since those determinations have not yet been made, I may not dismiss the action at this time for lack of diversity jurisdiction, for “where the issue of subject matter jurisdiction is so intertwined with the merits that its resolution depends on the resolution of the merits, the court should ... dismiss for lack of jurisdiction only where no triable issues of fact exist”. Hamm v. United States, 439 F.Supp.2d 262, 264 (W.D.N.Y.2006) (Larimer, J.), aff'd, 483 F.3d 135 (2d Cir.2007). “This doctrine is applicable ... before adequate discovery has been completed, and when conflicts of fact exist.” Id.

However, should it subsequently be determined that the minimal diversity requirements of § 1332(d)(2)(A) have not been satisfied, then this action must be dismissed for lack of subject matter jurisdiction.

B. Is the Application of RPL § 275 and RPAPL § 1921 in this Case Preempted by Federal Law?

“[B]ecause federal preemption is an affirmative defense, the burden of proof is on the defendant.” In re Methyl Tertiary Butyl Ether (MTBE) Products Liability Litigation, 739 F.Supp.2d 576, 600 (S.D.N.Y.2010). For the following reasons, I conclude that First Niagara cannot satisfy that burden.

First Niagara's preemption argument focuses primarily upon 12 C.F.R. § 34.4(a)(10), which states that “[a] national bank may make real estate loans under 12 U.S.C. 371 and § 34.3, without regard to state law limitations concerning ... [p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages”.² First Niagara contends that “RPAPL § 1921 and RPL § 275 ‘concern’ the processing and servicing of mortgages—and are thus preempted by § 34.4(a) —because they prescribe requirements for discharging mortgages and impose penalties for noncompliance”. First Niagara's Memorandum of Law [37–1], p. 6 (citing Cassese v. Washington Mutual, Inc., 255 F.R.D. 89 (E.D.N.Y.2008) and McAnaney v. Astoria Financial Corp., 665 F.Supp.2d 132 (E.D.N.Y.2009) ).

However, I need not decide whether the statutes “concern the processing and servicing of mortgages” unless I first find that First Niagara “made” Zink's real estate loan, for—unlike 12 U.S.C. § 371(a) and 12 C.F.R. § 34.3(a) (both expressly referred to in § 34.4(a) ) which use the more expansive phrase “make, arrange, purchase, or sell loans”— § 34.4(a) applies only to banks which “make” loans. This difference in language cannot be ignored. “[W]hen the regulator uses certain language in one part of the regulation and different language in another, the court assumes different meanings were intended”. DaCosta v. Prudential Insurance Co. of America, 2010 WL 4722393 *5 (E.D.N.Y.2010).

Zink alleges that First Niagara did not make his loan, but instead acquired his mortgage by assignment from HSBC Mortgage Corporation (USA). Amended Complaint [21], ¶ 12. Therefore, I conclude that § 34.4(a) does not apply to this transaction. See Cannon v. Wells Fargo Bank N.A., 917 F.Supp.2d 1025, 1049 (N.D.Cal.2013) (“It is difficult to see how there can be preemption pursuant to § 34.4. Section 34.4(a) expressly provides that a national bank has powers with respect to ‘mak[ing] real estate loans' without regard to state law limitations.... But here, Wells Fargo did not extend a real estate loan to Plaintiffs”).³

However, even if First Niagara had made Zink's loan, I am not persuaded by the preemption analysis in Cassese and McAnaney. At issue in Cassese was 12 C.F.R. § 560.2(a), a regulation promulgated by the Office of Thrift Supervision (“OTS”) pursuant to the Home Owners' Loan Act (“HOLA”), 12 U.S.C. §§ 1461 et seq. In pertinent part, that regulation states: “OTS hereby occupies the entire field of lending regulation for federal savings associations. OTS intends to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform...