Federal Deposit Ins. Corp. v LaMattina

[*1] Federal Deposit Ins. Corp. v LaMattina 2010 NY Slip Op 51048(U) [27 Misc 3d 1236(A)] Decided on June 11, 2010 Supreme Court, New York County Gische, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 11, 2010
Supreme Court, New York County

Federal Deposit Insurance Corporation, as Receiver of IndyMac Bank, FSB, Plaintiff,

against

Joseph LaMattina; LAMATTINA & ASSOCIATES, INC; VINCENT ANCONA; UNION AMERICA MORTGAGE, INC.; FRANK ALFIERI; JAMES LAFORTE JR.; TINA LAFORTE; TARA CAMINITI; CHRISTINE ALFIERI; NICK LOMBARDI; PRELUDE ABSTRACT CORP.; GDA CONTRACTING, INC.; HILLIS, INC.; GMC LENDING & MORTGAGE SERVICES CORP.; GMC LAND SERVICES, INC.; RICHMOND ABSTRACT CORP.; RICHMOND ABSTRACT OF FLORIDA, INC.; JOSEPH W. LAFORTE; MONIQUE LAFORTE; NEW CORP CONSTRUCTION CORP.; JAMES LAFORTE SR.; MICHAEL O'LEARY; VICTORY STATE BANK, AND JOHN DOES "1" THROUGH "10,", Defendants.



403764/2006



Plaintiff

WEINSTEIN SMITH LLP

Eric Weinstein

Yong Hak Kim

420 Lexington Avenue, Ste. 2620

New York, NY 10170

(212) 931-8701

Attorneys for Victory Store Bank

David S. Douglas Gallet Dreyer & Berkey LLP

845 Third Avenue

New York, NY I0022

Attorneys for Victory State Bank

David S. Douglas

Gallet Dreyer & Berkey LLP

845 Third Avenue

New York, NY 10022

Attorneys for Vincent Ancona and Union America Mortgage

Steven Vemeniotis

Miranda Sambursky LLP

240 Mineola Boulevard

Mineola, NY 1 150 1

Joseph LaMattina

81 Allison Avenue

Staten Island, NY 10306

(71 8) 667-391 5

Attorneys for Christine AIfieri

Jaime Lathrop

94 12 4th Avenue

Brooklyn, NY 11209

jimmy.lathrop@gmaiI.com

(718) 748-0432

Attorneys for Michael 0 'Leary

Felice J. Muraca

Law Offices of Felice J. Muraca, P.C.

1 14 Old Country Road, Ste 420

Mineola, NY 11501-4410

Michael O'Leary

120 Poilfon Avenue

Staten Island, NY 10312

Judith J. Gische, J.

Plaintiff moves for partial summary judgment on the issue of liability only, on the seventh cause of action asserted in the Third Amended Complaint against defendants Vincent Ancona and Union America Mortgage, Inc. Defendants Vincent Ancona and Union America Mortgage Inc. cross-move for summary judgment dismissing the complaint as to them. In accordance with this court's decision and order, dated 2/13/07, as affirmed by the Appellate Division, First [*2]Department (49 AD3d 395 [1st dept. 2008]), the only remaining cause of action against Union America Mortgage is for negligent retention of a closing agent (seventh cause of action). The claims outstanding against Vincent Ancona are for breach of contract (sixth cause of action) and negligent retention of a closing agent (seventh cause of action).

Issue has been joined and this motion and cross-motion were brought within 120 days after the filing of the Note of Issue. CPLR § 3212; Brill v. City of New York, 2 NY3d 648 [2004]. The motions will, therefore, be considered by the Court on their merits.

Underlying Facts

Certain facts are undisputed. FDIC is the successor in interest to IndyMac Bank FSB (collectively "IndyMac"). IndyMac was engaged in the business of providing residential mortgage loans to consumers in New York State. Defendants were mortgage brokers. Vincent Ancona ("Ancona") was and is the principal of Union America Mortgage, Inc. ("UA") (collectively "Ancona/UA").

Ancona/UA brokered loans for IndyMac. It would identify a potential borrower, complete a loan application and then assemble the necessary documentation and information. The loan package was then presented to IndyMac for it to decide whether or not to fund the loan. In connection with the loans Ancona/UA brokered, once IndyMac cleared a loan for closing, Ancona/UA would select a closing agent from a list of agents pre- approved by IndyMac. Ancona/UA selected LaMattina & Associates, Inc. ("L & A") as the closing agent for its IndyMac loans, including the six mortgage loans that are at the crux of the instant dispute ("six mortgage loans"). L & A had been an approved closing agent for IndyMac since in or about July 2004. Once Ancona/UA completed its paper work on any particular transaction, it ceased to be actively involved in a particular matter and IndyMac would deal directly with L & A.

Between July 12, 2005 and August 9, 2005, IndyMac wired the funds necessary to close on the six mortgage loans directly to L & A's settlement account, maintained at Victory State Bank. By the time of the actual closings, however, the monies had disappeared and it was later determined that the money was stolen by L & A and its principals, including co-defendant Joseph Laforte and others.[FN1]

IndyMac's claims against Ancona/UA are predicated on its argument that at the time Ancona/UA selected L & A as the closing agent, Ancona/UA had information that should have led it to conclude that L & A was an untrustworthy settlement agent. Ancona's defense is that under the parties' contractual arrangement, Ancona had no obligation to select a closing agent. Ancona also argues that the indemnification provisions of the parties' agreement are unenforceable as a matter of law. Ancona/UA argues that it did not breach any common law duty owed to IndyMac because it had no information that should have led it to conclude that L & A was an untrustworthy and/or dishonest closing agent. In any event, Ancona/UA contends that, because IndyMac pre-certified L & A as a closing agent, Ancona/UA bears no legal responsibility for having chosen them in connection with the six mortgage loans.

Discussion

Law on summary judgment [*3]

A movant seeking summary judgment in its favor must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case. (Winegrad v. New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]). The evidentiary proof tendered, however, must be in admissible form (Friends of Animals v. Assoc. Fur Manufacturers, 46 NY2d 1065 [1979]). Once met, this burden shifts to the opposing party who must then demonstrate the existence of a triable issue of fact (Alvarez v. Prospect Hosp., 68 NY2d 320, 324 [1986]); Zuckerman v. City of New York, 49 NY2d 557 [1980]). In this case each party bears the initial burden on their relative motions for summary judgment. Where the issues raised concern only issues of law, such as contract interpretation, the court can and should resolve them on a dispositive motion. (American Express Bank Ltd. v. Uniroyal, Inc. 154 AD2d 275 [1st dept. 1990]).

Negligence

In the Seventh cause of action, IndyMac alleges that Ancona/UA breached its duty to act as a reasonable mortgage broker would act in the same or similar circumstances. It claims that this duty was breached when Ancona/UA selected L & A as the closing agent for the underlying six loans, with knowledge that L & A was dishonest.

The elements of a claim for negligence are: duty, breach of duty, causation and damages. Salvador v. New York Botanical Garden, 71 AD3d 422 (1st dept. 2010). [FN2] Whether a party has a legal duty to another is entirely a matter of law to be determined by the courts. Espinal v. Melville Snow Contractors, Inc., 98 NY2d 136 (2002); Strauss v. Belle Realty Co., 65 NY2d 399 (1985). This court has already found that, as a matter of law, Ancona/UA had a legal duty to IndyMac to act as a reasonable mortgage broker would have acted under the same or similar circumstances. (Decision/Order 2/13/07). The Appellate Division affirmed that finding of law (49 AD3d 395 [1st dept. 2008]).

In this regard, Ancona/UA's arguments, that it has no duty to IndyMac, are rejected. Ancona/UA's arguments are not only precluded by law of case (People v. Evans, 94 NY2d 499 [2000]), they otherwise have no merit. The duty imposed on them is not to control L & A's conduct or prevent L & A from doing criminal acts (see: Hamilton v. Berretta USA Corp., 96 NY2d 222 [2001] ), but rather the duty to use reasonable care in fulfilling its own obligations to IndyMac by not selecting a closing agent known by Anocona/UA to be dishonest in handling mortgage monies. Nor is, as Ancona/UA claims, the duty imposed one that arises out of the parties' contract and, therefore, not separately actionable in negligence (see: Clark-Fitzpatrick, Inc. v. Long Island Rail Road Company, 70 NY2d 382 [1987]). As Ancona argues in connection with its breach of contract claims, there was no express obligation in the parties' agreement for Ancona to "hire" the closing agent on IndyMac loans. Thus, its practice of otherwise selecting a closing agent for IndyMac transactions, may be evaluated in connection with its general duty of care as a mortgage broker.

IndyMac claims that the court should now hold, as a matter of law, that Ancona breached [*4]that duty. Ancona/UA claims that the court should now hold, as a matter of law, that it did not breach such duty. While the issue of whether a duty exists is within the court's purview, the question of whether a duty has actually been breached is usually an issue of fact. Tagle v. Jacob, 97 NY2d 165 (2001); Daubert v. Flyte Time Regency Limousine, 1 AD3d 395 (2nd dept. 2003). Neither party has established, as a matter of law, that there are undisputed facts which either prove or disprove the issue of breach of duty.

In seeking a determination that there has been a breach of duty, IndyMac relies on the fact that prior to selecting L & A as the closing agent for the six mortgage loans, Ancona, an attorney, represented L & A, Joseph LaForte and some of LaForte's related business entities in four separate legal actions, each involving serious allegations of mortgage fraud and diversion of escrow funds. IndyMac also relies on Ancona's repeated dealings with LaForte as proving Ancona's knowledge that L & A was not controlled by Joseph LaMattina, Esq., even though Ancona knew that, in New York State, a mortgage closing agent has to be a lawyer or law firm. IndyMac also claims that Ancona knew that monies, paid in connection with some of the mortgage fraud suits involving other parties, was coming from the settlement trust account into which IndyMac's funds were deposited.

IndyMac argues that these facts compel a legal conclusion by the court that Ancona/UA knew, when it selected L & A as the closing agent, that L & A was dishonest and untrustworthy. IndyMac argues further that these facts prove, as a matter of law, that L & A had "propensity to divert trust funds."

While certainly IndyMac presents compelling facts from which a jury might draw such a conclusion, they are not sufficient to establish breach of duty, as a matter of law. Exactly what these prior court actions concerned, and what knowledge could be imputed to Ancona/UA as a result of the existence of these actions, is a matter for the jury to weigh and consider. There were no judicial findings made in any of the four litigations. Likewise, the other facts presented are ones for a jury to weigh and consider in determining whether any duty has been breached.

Ancona/UA arguments that, as a matter of law, there was no breach of duty are also rejected. Anconas/UA's arguments that it played no role in the hiring of L & A as the closing agent is belied by the facts. There are facts establishing that, as a matter of business practice, Ancona/UA used its discretion in selecting any closing agent it wanted, provided the closing agent that was otherwise on IndyMac's pre-approved list. Ancona/UA's arguments that IndyMac failed to adequately vet its eligible closing agents may effect issues of comparative negligence, but they do not absolve Ancona/UA of liability as a matter of law. CPLR Art. 14.

The court also rejects Ancona/UA's arguments that criminal conduct by a third party is per se unforeseeable. While the question of foreseeability is for the court to resolve when the facts are undisputed and only one inference can be drawn, it is for the finder of fact to resolve when varying inferences can be drawn. (Rivera v. New York City Transit Authority, 77 NY2d 322 [1991]). The court will determine in the first instance, however, if the issue of foreseeability is a matter of law or a jury issue in any particular case. (Carradine v. New York, 13 NY2d 291 [1963]). The court finds that the issue of foreseeability in this case is for the jury. In this regard the underpinning of IndyMac's claims is whether Ancona/UA's intimate knowledge of L & A's prior untrustworthiness and dishonesty made it foreseeable that selecting L & A as a closing agent on the six subject IndyMac mortgages would subject IndyMac to theft. IndyMac has raised [*5]enough facts that would allow a jury to reach such a conclusion.

The Court also considers and rejects Ancona/UA's argument that the criminal conduct of L & A principals constituted an intervening cause by a third party that, as a matter of law, absolves Ancona/UA from liability. This issue of causation is closely related to the issue of foreseeability. An intervening cause requires that the plaintiff's contact with a third party be extraordinary and unforeseeable. (Fischman v. Beach, 237 AD2d 705 [3rd dept., 1997)]. Thus, even where there is an independent act of a third party, a defendant is not relieved of liability if the intervening act is one that naturally flows from the original wrongful act or could reasonably have been foreseen. (Gordon v. Eastern Ry. Supply, Inc., 82 NY2d 555 [1993)]. The fact that the subsequent action by a third party was criminal in nature does not per se establish an intervening cause. (Bell v. Board of Education of the City of New York, 90 NY2d 944 [1990]). Moreover, in general, the issue of whether an intervening act relieves defendant of liability is for the jury. (Morris v. Lenox Hill Hosptial, 232 AD2d 184 [ 1st dept. 1996] affd. 90 NY2d 953 [1997]). Since the causation issue, like the breach of duty issue, depends on the resolution of the issue of foreseeability, it is not amenable to summary adjudication.

For the foregoing reasons, the court holds that the motion and cross-motion for summary judgment on the cause of action for negligence are denied.

Breach of Contract

The breach of contract claims alleged in the Sixth cause of action apply only to Ancona and not UA. By Notice dated April 10, 2008 IndyMac voluntarily abandoned, waived and struck paragraphs 46, 146, 147 and 148 of the Third Amended complaint, pertaining to claims that Ancona/UA failed to maintain quality control over L & A. Thus, IndyMac's allegations against Ancona are limited to claims that: "There are circumstances or conditions with respect to the origination of the loan that could cause private institutional investors who invest in loans with similar loan program parameters to regard the loan as an unacceptable investment, cause the loan to become delinquent or adversely affect the value or marketability of the loan" and " the origination and collection practices used by Ancona with respect to each note and security instrument were not in all respects legal, proper, prudent and customary in the mortgage origination and servicing business, and fraud and misrepresentation occurred in the origination of the loan..."(Third Amended complaint ¶ 145)

Preliminarily, Ancona argues that when the court decided the prior motion to dismiss (which was then affirmed by the Appellate Division), it considered documentary evidence of the parties' contract that, after discovery, turned out not to constitute the actual contract between the parties (Order, Gische J., 2/13/07). Thus, he claims that the court relied upon a Lender's Guide ("Lender's Guide") that had improperly been provided to the court, when actually it was an earlier Seller's Guide ("Seller's Guide") that governed the parties' relationship. Ancona argues, therefore, that the court's prior interpretation of documents in the motion to dismiss does not bar consideration of the arguments he now makes on the correct documents. The court decides to consider, on the merits, Ancona's argument that he is not a seller under the parties' contractual relationship and, therefore, not responsible for any sellers' warranty or representation.

In particular Ancona argues that this Court previously held that Ancona was a seller under the definition of "seller" contained in the Lender's Guide in effect at the time of the defalcations. Ancona states that when it entered into its agreement with IndyMac, the Seller's Guide in effect, [*6]contained a different definition of "seller" and that he should not be considered a seller thereunder.

IndyMac never expressly denies that it is the Seller's Guide in effect at the time the parties entered into their relationship that controls the outcome of the breach of contract action. Nor does it deny that the Lender's Guide considered by the Court on the motion to dismiss was the Guide in effect at the time of the defalcations and not at the time the parties entered into any agreement.

While the definitions of seller in the applicable Seller's Guide and the later Lender's Guide use some different language, they are substantially similar in their scope. Under both guides, a seller is defined as a person who enters into a seller contract with IndyMac. Under the applicable Selle'rs Guide a "sellers contract" is defined as "a loan delivery, sale and servicing agreement between [IndyMac] and the seller..." Under the later Lender's Guide, a seller's contract is defined as " a loan delivery, sale and servicing agreement.." It then goes on to list particular agreements that come within the broader categories, including but not limited to customer agreements, and customer agreements and e-MITS User Agreements. Ancona entered into a contract with IndyMac on or about May 21, 2002 called a "Customer Agreement and e-MITS User Agreement" ("Customer Agreement"). Thus while the later Lender's Guide expressly includes customers and e-MITS users as sellers, such inclusion is merely by way of further explanation of what otherwise constitutes a loan delivery agreement. In this regard the general reference to the loan delivery agreements as bing a sellers agreement in the applicable Seller's guide is sufficient to characterize Ancona's status as a customer and e-Mits user as a seller. The court, therefore, rejects Ancona's argument that, as a matter of law, he is not a "seller" under the Customer Agreement.

Acona alternatively argues that, even assuming he is a seller, the seller's warranties and representations do not provide a basis for relief against him because he fulfilled his responsibilities under the parties' contract. Ancona claims that when he provided the initial loan application and collateral documents to IndyMac for IndyMac to determine whether or not to fund the mortgage, Ancona's obligations as to any particular mortgage application ended. Ancona argues that as of the funding date he did not know of any circumstances of conditions with respect to the security instrument that would cause any private or personal investor to regard the loan as an unacceptable investment.

IndyMac agrees that Ancona's responsibilities were to provide IndyMac with information and documents regarding the applicant and property, so that IndyMac could assess whether or not to fund the loan. (IndyMac Reply memorandum of law [FN3] p14). IndyMac also acknowledges that seller's warranties and representations were to be made as of the funding date which, in the case of newly funded loans, was the date IndyMac provided the necessary funds to a closing agent (IndyMac Reply memorandum of law p15). IndyMac argues that as of the funding date of the six mortgage loans, Ancona knew of circumstances or conditions that could cause private [*7]institutional investors to regard the loan as an unacceptable investment because "in this instance, the mortgages for each subject loan were clearly ones that would cause investors to regard the loans as an unacceptable investment, because they remained subject to existing senior liens that were not paid off." (IndyMac Reply Memorandum of Law p17).

This statement, whether true or not, is not part of IndyMac's claims throughout this action and is not raised in the pleadings. The gravamen of the Third Amended complaint (and all previously filed complaints) is that Ancona's beach of seller's warranties and representations caused the selection of L & A as a closing agent and that such agent stole the monies provided by IndyMac to fund the six mortgage loans. Indeed, the damages sought in this case have always been based upon the amount of the stolen funds. Thus, whether the six mortgage loans made were originally a good investment, or would have failed, is simply not relevant to the claims made before the court.

On summary judgment Ancona has shown that it did not breach any seller's representations or warranties causing injury in this matter. IndyMac has failed to come forward with any proof that would otherwise create an issue of fact about whether there were breaches of warranties and representations that caused the opportunity for L & A to steal funds from IndyMac. The motion for summary judgment on the contract cause of actions is, therefore, granted and the sixth cause of action is dismissed.

Indemnification

Since the breach of contract cause of action is dismissed, the court does not reach the issues related to the legal validity of the indemnification provisions.

Conclusion

In accordance herewith it is hereby:

ORDERED that plaintiff, Federal Deposit Insurance Corporation, as Receiver of IndyMac Bank, FSB's motion for partial summary judgment on the seventh cause of action is denied, and it is further

ORDERED that Vincent Ancona's motion for summary judgment dismissing the sixth cause of action for breach of contract is granted and the matter is severed and the clerk of the court is directed to enter a judgment dismissing the sixth cause of action, and it is further

ORDERED that defendants, Vincent Ancona and Union America Mortgage, Inc.'s motion for summary judgment dismissing the seventh cause of action for negligence is denied, and it is further

ORDERED that this case is otherwise ready for trial; and it is further

ORDERED that plaintiff shall serve a copy of this order on the Office of Trial Support so the case can be scheduled for trial; and it is further

ORDERED that any requested relief not expressly granted herein is denied, and it is further

ORDERED that this constitutes the decision and order of the court.

Dated:New York, NY

June 11, 2010

So Ordered:

_______________________ [*8]

J.G. J.S.C. Footnotes

Footnote 1: While this case was pending, Joseph Laforte and his siblings pled guilty to stealing over $15 million dollars from several mortgage lenders, including IndyMac.

Footnote 2:Ancona/UA concedes, and this court agrees, that while the law of California applies to the parties' contract disputes (see decision, supra) the negligence claims are governed by the laws of the State of New York.

Footnote 3:This document is actual entitled The FDIC's Memorandum of Law in Further Support of Plaintiff's Motion for Summary Judgment and in Opposition to the Cross-Motion by Ancona and Union America. It will be referred to herein as "IndyMac's Reply Memorandum of Law"