Richstone v Everbank Reverse Mtge. LLC

[*1] Richstone v Everbank Reverse Mtge. LLC 2009 NY Slip Op 52762(U) [27 Misc 3d 1201(A)] Decided on July 8, 2009 Supreme Court, New York County Bransten, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on July 8, 2009
Supreme Court, New York County

Natalie Richstone and GEOFFREY RICHSTONE, individually, and on behalf of all other persons similarly situated, Plaintiffs,

against

Everbank Reverse Mortgage LLC, METLIFE, INC. and METLIFE BANK, N.A., Defendants.



106444/08



The attorneys on the matter were David Etkind, Esq., of Echtman & Etkind, LLP (for the plaintiff), and Linda Imes, Esq. and Debra A. Karlstein, Esq., of Spears & Imes LLP (for the defendants).

Eileen Bransten, J.

Defendants Everbank Reverse Mortgage LLC ("Everbank"), MetLife, Inc. ("MetLife") and MetLife Bank, N.A. ("MetLife Bank" together with MetLife and Everbank as "Defendants") move, pursuant to CPLR 3211 (a) (1) and (a) (7), to dismiss the complaint. Plaintiffs Natalie and Geoffrey Richstone ("the Richstones" or "Plaintiffs") oppose the motion, and cross-move, pursuant to CPLR 3212, for partial summary judgment compelling Everbank to perform.

BACKGROUND

Plaintiff Natalie Richstone owns the condominium unit located at 360 East 88th Street, PH 2B, New York, New York (Compl ¶ 3). Plaintiff Geoffrey Richstone, Natalie Richstone's brother, has an interest in the Condo (id. at ¶ 4).

Around November 2007, Geoffrey Richstone, with Natalie Richstone's consent, applied for a reverse mortgage[FN1] with Everbank (hereinafter the "Reverse Mortgage") and it was approved [*2](id. at ¶ 7).

Initially, Everbank agreed to provide the Reverse Mortgage at a fixed interest rate of 9.12 % (id. at ¶ 8). The Reverse Mortgage was scheduled to close in February 2008, some extension occurred, and the closing was rescheduled for March 2008 (Richstone Aff at ¶¶ 6-7). The day before the March 21, 2008 closing of the Reverse Mortgage, Everbank cancelled the closing (Compl at ¶ 9).

The Richstones assert that Everbank was planning to securitize the Reverse Mortgage as one of a package of such loans, but determined that it could not do so (id. at ¶ 10).

After March 21, 2008, Everbank demanded that the loan-to-value ratio of the Reverse Mortgage be substantially decreased and that the interest rate on the Reverse Mortgage be increased to 12% (id. at ¶¶ 11, 12).

On April 3, 2008, Everbank's corporate parent agreed to sell Everbank to MetLife (the MetLife Acquisition) (id. at ¶ 13). The Richstones contend that the Reverse Mortgage could not be consummated because it would violate the terms of the MetLife Acquisition (id. at ¶ 17). Subsequently, MetLife, through its affiliate, MetLife Bank, acquired Everbank, which became a wholly owned subsidiary of the bank (id. at ¶ 19).

On April 30, 2008, a meeting occurred between Craig Corn, a co-President of Everbank, and the Richstones (id. at ¶ 16). At the meeting, Corn stated that MetLife had conducted due diligence related to Everbank in connection with a prior deal that was not consummated, that MetLife had been investigating Everbank ever since that time, and that the Reverse Mortgage could not be consummated because it would violate the Metlife Purchase Agreement (id. at ¶ 17).

Both in their individual capacities and on behalf of all those who currently have or in the past have applied for a reverse mortgage with Everbank, the Richstones commenced this putative class action seeking specific performance, reformation, and damages for breach of contract (first cause of action), damages for violating New York General Business Law § 349 (third cause of action), and recovery for breach of a fiduciary duty (fourth cause of action). Plaintiffs have also sued defendants MetLife and MetLife Bank, who purchased Everbank, to compel specific performance of the agreements at issue and to recover damages for tortious interference with contract (sixth cause of action).

ANALYSIS

Breach of Contract [*3]

Defendants argue that the Richstones have not pleaded the essential terms of an enforceable contract, and thus, that their breach of contract claim must be dismissed.

While a breach of contract claim may be premised on a commitment letter to lend money (Res. Mortg. Banking v Turley, 233 AD2d 308, 310 [2d Dept 1996] [reversing dismissal of complaint alleging breach of loan commitment letter]; Zelazny v Pilgrim Funding Corp., 41 Misc 2d 176, 181 [District Court of New York, Nassau County 1963] ["A commitment letter to a prospective borrower constitutes a contract and one who has suffered damage as a result of a breach of such contract may recover damages for the breach thereof"]), vague and conclusory allegations are insufficient (Gordon v Dino De Laurentiis Corp., 141 AD2d 435, 436 [1st Dept 1988] ["In the absence of any allegations of fact showing damage, mere allegations of breach of contract are not sufficient to sustain a complaint, and the pleadings must set forth facts showing the damage upon which the action is based"]).

Significantly, the Richstones do not allege the amount of the loan that Everbank committed to lend, when and how Everbank became bound to lend any particular amount, or when and how Everbank "agreed to provide the [] Reverse Mortgage at a fixed interest rate of 9.12%" (Complaint ¶ 8). Although the Richstones seek to hold Everbank to the interest rates and loan-to-value ratio contained in the February 2008 closing documents (see Geoffrey Richstone Aff at ¶¶ 8-9), the commitment letter contains no obligation that a rescheduled closing contain the same terms. Instead, it provides that the "interest rate on [the] loan will be locked-in a maximum of two (2) business days . . . prior to [the] loan closing date" (Echtman Aff, Ex 3, at 1).

Moreover, Geoffrey Richstone signed and submitted along with his application a document titled: "REVERSE SELECT Interest Rate Disclosure and Maximum Advance Limit Disclosure" (Karlstein Affirmation, Ex B, at 1). Contradicting the notion that Everbank was obligated to maintain the same terms from prior closings, it discloses:

"A Lock-In' establishes the rate that will be applied at closing to the Amount Financed with your reverse mortgage loan.

. . .

The interest rate on your loan will be locked-in two (2) business days (not including Saturdays, Sundays or holidays) prior to your loan closing date.

. . .

If, for any reason, your loan does not close after the rate has been locked and the documents have been drawn, the new locked-in rate will be determined as follows:

The interest rate will be re-set at the higher of the originally locked-in rate or the current rate two (2) business days prior to the new closing date.

. . .

The Maximum Advance Limit Disclosure describes the terms and conditions under which the Lender will determine the maximum amount you may borrow under your Reverse Select Loan.

. . .

A maximum credit limit was calculated at the time of your application based on your estimated home value, as well as the market conditions in effect at the time. Because the actual Maximum Advance Limit on your loan will be calculated at the time your interest rate is locked, as described above, your Maximum Advance Limit may be higher or lower than was estimated upon application" (id. [emphasis added]). [*4]

Because the Richstones fail to allege the essential terms of the contract, including the specific provisions upon which liability is predicated, its breach of contract claim is dismissed (Sud v Sud, 211 AD2d 423, 424 [1st Dept 1995]).

Plaintiffs' attempt to convert its breach of contract claim into a breach of the implied covenant of good faith and fair dealing claim is unavailing. It is axiomatic that a claim for breach of the covenant of good faith and fair dealing cannot survive absent a valid breach of contract claim (TeeVee Toons, Inc. v Prudential Sec. Credit Cog., LLC, 8 AD3d 134, 134 [lst Dept 2004] [affirming dismissal of claim for breach of the implied covenant of good faith because it was "redundant" of breach of contract claim]; Triton Partners LLC v Prudential Sec. Inc., 301 AD2d 411,411 [1st Dept 2003] [affirming dismissal of covenant of good faith and fair dealing claim where "it was merely a substitute for a nonviable breach of contract claim"]; see Empire State Bldg. Assocs. v Trump, 247 AD2d 214, 214 [1st Dept 1998], lv dismissed in part, denied in part 92 NY2d 885 [1998] ["The causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing were properly dismissed on the grounds that the former fails to adequately allege any breach of contract, and the latter merely duplicates the former"]).

Specific Performance

When "material terms are left open for future negotiations, the contract is not enforceable" (Yan's Video, Inc. v Hong Kong TV Video Programs, Inc., 133 AD2d 575, 578 [1st Dept 1987]). Because the commitment letter is unenforceable, the remedy of specific performance is unavailable (Lelekakis v Kamamis, 41 AD3d 662, 664 [2d Dept 2007]).

GBL § 349

If there is any reasonable view of the facts that would allow for recovery, a complaint is legally sufficient (219 Broadway Corp. v Alexander's, Inc., 46 NY2d 506, 509 [1979]). However, allegations consisting of bare legal conclusions and factual claims flatly contradicted by documentary evidence, are not entitled to a presumption of truth or accuracy (Beattie v Brown & Wood, 243 AD2d 395, 395 [1st Dept 1997]).

Defendants argue that plaintiffs fail to plead elements of a GBL § 349 claim, since they allege neither a cognizable injury nor any misleading or deceptive act by Everbank. Further, defendants contend, the conduct alleged to violate GBL § 349 must have a broad impact on consumers at large before it can be actionable.

Claims under General Business Law § 349 are available to "an individual consumer who falls victim to misrepresentations made by a seller of consumer goods through false or misleading advertising" (Small v Lorillard Tobacco Co., 94 NY2d 43, 55 [1999]; see also Goshen v Mutual Life Ins. Co., 98 NY2d 314, 324 n 1 [2002]). To state a claim, a plaintiff must allege that the defendant engaged " in an act or practice that is deceptive or misleading in a material way and that plaintiff has been injured by reason thereof'" (id. at 324, quoting Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 25 [1995]).

"A deceptive act or practice is a representation or omission likely to mislead a reasonable consumer acting reasonably under the circumstances" (Zurakov v Register.Com, Inc., 304 AD2d 176, 180 [1st Dept 2003]).

Sulner v General Accident Fire & Life Assurance Corp. illustrates the type of deceptive [*5]conduct sustained under GBL § 349 (122 Misc 2d 597, 597-98 [Sup Ct, Special Term, NY County 1984]). When plaintiffs' business moved, it requested water damage insurance for the new premises and was advised that such coverage would be issued (id.). A substantial and severe water damage loss occurred (id.). After months of inaction by the insurer, an adjuster examined what was left of the records and property that had been damaged, stated there was coverage, made a final examination, and told plaintiffs it was no longer necessary to retain the damaged property since the examination had been completed (id.). Thereafter, plaintiffs destroyed the bulk of the damaged property (id.). Months later, plaintiffs were notified that the defendants had disclaimed coverage (id.).

Additionally, as identified by the court in Goldberg v Manhattan Ford Lincoln-Mercury, "[t]he kinds of trade practices which have been considered as deceptive in the past include false advertising, pyramid schemes, deceptive preticketing, misrepresentation of the origin, nature or quality of the product, false testimonial, deceptive collection efforts against debtors, deceptive practices of insurance companies, and bait and switch' operations" (129 Misc 2d 123, 125-26 [Sup Ct, Special Term, NY County 1985] [citations omitted]).

The Richstones simply allege that "Everbank by failing to deliver as promised the reverse mortgages that it had contracted to provide has engaged in and is engaging in a business practice in violation of General Business Law § 349" (Complaint ¶ 42). No allegations are offered from which the Court may infer that defendants committed any deceptive or misleading acts. The Richstones' allegations, which amount to nothing more than an unfulfilled promise, bear no resemblance to those cases in which a claim has been allowed (see Scavo v Allstate Ins. Co., 238 AD2d 571, 572 [2d Dept 1997] ["the scheme, which purportedly was designed to force the plaintiff and other insureds into using . . . affiliated contractors by means of misrepresentations, threats, and various retaliatory measures, is indicative of the deceptive practices that General Business Law § 349 was designed to prevent"]; People by Vacco v Lipsitz, 174 Misc 2d 571, 573-74 [Sup Ct, NY County 1997] [allegations that respondent, using various assumed business names, sold magazine subscriptions while pocketing the subscription money and causing only some magazines to be delivered]).

Moreover, the conduct must be consumer-oriented and have a broad impact on consumers at large (Oswego Laborers' Local 214 Pension Fund, 85 NY2d at 26; see, e.g., Pellechia & Pellechia, Inc. v American Nat'l Fire Ins. Co., 244 AD2d 395, 396 [2d Dept 1997] ["Since the complaint essentially alleges a private contract dispute over policy coverage and the processing of a claim which is unique to these parties, rather than conduct which affects the consuming public at large, the complaint fails to allege a cause of action pursuant to General Business Law § 349"]; Sec. Mut. Life Ins. Co. v DiPasquale, 283 AD2d 182, 182 [1st Dept 2001] ["The proposed counterclaim under General Business Law § 349 is not viable because the counterclaim essentially alleges a private contract dispute over policy coverage that is unique to the parties, rather than conduct that affects consumers at large'"]). Nothing more than a failure to abide by a private agreement is alleged here. Accordingly, the third cause of action is dismissed.

Breach of Fiduciary Duty

Defendants maintain that plaintiffs have failed to plead any facts giving rise to a fiduciary relationship between potential borrower Richstone and Everbank.

Generally, "[t]he legal relationship between a borrower and a bank is a contractual one of [*6]debtor and creditor and does not create a fiduciary relationship between the bank and its borrower" (Bank Leumi Trust Co. v Block 3102 Corp., 180 AD2d 588, 589 [1st Dept 1992]; but see Wiener v Lazard Freres & Co., 241 AD2d 114, 122 [1st Dept 1998] ["the ongoing conduct between parties may give rise to a fiduciary relationship that will be recognized by the courts"]). In Wiener, however, "the plaintiffs alleged that [defendant] had acted on their behalf in assuming negotiations with [a third-party], and that they had relied upon him specifically because of [defendant's] expertise and reputation, because of [defendant's] alleged inside connection' with a highly placed [third-party] executive and because [the third-party] apparently preferred to deal with plaintiffs through [defendant] rather than directly with plaintiffs" (241 AD2d at 123).

Here, in contrast, the Richstones merely allege that "[r]everse mortgages are marketed and sold to senior citizens" and conclusorily assert that "Everbank owes a fiduciary duty to the Richstones and others similarly situated concerning its reverse mortgage product" (Complaint ¶¶ 46, 47). Accordingly, the Richstones fail to allege the existence of a fiduciary duty and therefore this claim is also dismissed.

Reformation

The cause of action seeking reformation is dismissed as asserted by the Richstones since it is undisputed that the parties did not finalize a contract to be reformed (Netley Offices, Inc. v Burgundy Realty Corp., 238 AD 559, 564 [1st Dept 1933] ["If the minds of the parties did not meet, then there was no contract, and, therefore, none to be reformed"]).

Tortious Interference

Defendants assert that the Richstones fail to allege each element of a cause of action for tortious interference with contract.

To plead tortious interference with contract, "the plaintiff must show the existence of its valid contract with a third party, defendant's knowledge of that contract, defendant's intentional and improper procuring of a breach, and damages" (White Plains Coat & Apron Co., Inc. v Cintas Corp., 8 NY3d 422, 426 [2007]).

Without an essential element of the claim for tortious interference with contract—a valid contract in the first place, the claim must fall as well (Israel v Wood Dolson Co., 1 NY2d 116, 120 [1956]).

Accordingly, it is

ORDERED that defendants' motion to dismiss is GRANTED and the complaint is dismissed, with leave for plaintiffs to replead within 20 days after service of a copy of this order with notice of entry; and it is further

ORDERED that plaintiff's cross-motion for partial summary judgment is DENIED.

This constitutes the Decision and Order of the Court.

Dated: New York, New York

July ___, 2009

E N T E R [*7]

Hon. Eileen Bransten Footnotes

Footnote 1:A reverse mortgage is a type of mortgage loan in which a homeowner borrows money against the value of the home (http://www.investopedia.com/terms/r/

reversemortgage.asp). Repayment of the mortgage loan is not required until the borrower dies or the home is sold (id.).

Through a reverse mortgage, older homeowners (62+) can convert part of the equity in their homes into income (Def Mem in Supp, at 3, citing http://www.reversemortgage.org/Default.aspx?tabid=230). "The reverse mortgage is aptly named because the payment stream is reversed.' Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you" (id.).