Fremont Inv. & Loan v Edwardsen

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[*1] Fremont Inv. & Loan v Edwardsen 2008 NY Slip Op 51349(U) [20 Misc 3d 1114(A)] [20 Misc 3d 1114(A)] Decided on June 18, 2008 Supreme Court, Richmond County Giacobbe, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 18, 2008
Supreme Court, Richmond County

Fremont Investment & Loan, Plaintiff,


Sharon Edwardsen a/k/a SHARON A. EDWARDSEN; UNITED STATES OF AMERICA INTERNAL REVENUE SERVICE; NEW YORK STATE DEPARTMENT OF TAXATION & FINANCE; "JOHN DOE 1" to "JOHN DOE 25", said names being fictitious, the parties intended being persons or corporations having an interest in, or tenants or persons in possession of, portions of the mortgaged premises described in the complaint, Defendants. SHARON EDWARDSEN, Third-Party Plaintiff, FREMONT INVESTMENT & LOAN, MERIDIAN ABSTRACT; ARGENT MORTGAGE CO., SUMMIT INVESTMENTS LOAN CORP. d/b/a E-ISLAND MORTGAGE, NASSER ALAMEDDIN, MARC LAMASSA; JOSEPH CRAPANZANO; ANTHONY BELLINI, CYNTHIA LAPERA, "JOHN DOE 26" and "JOHN DOE 27", Third-Party Defendants.


Movant/third-party defendant Argent Mortgage Co. was represented by Knuckles & Komosinski, P.C., by Kenneth J. Flickinger, Esq.

Third-party plaintiff Sharon Edwardsen was represented by Staten Island Legal Services, by Margaret Becker, Esq.

Anthony Giacobbe, J.

Upon the foregoing papers, the motion to dismiss by third-party defendant Argent Mortgage Co. is granted to the extent indicated and is otherwise denied.

To the extent relevant, it appears that on or about February 17, 2006, defendant/third-party plaintiff Sharon Edwardsen obtained a loan in the amount of $246,000.00 from third-party defendant Argent Mortgage Co. (hereinafter "Argent") to refinance an indebtedness to non-party Countrywide [*2]Home Loans (hereinafter "Countrywide").[FN1] Like its predecessor, the loan from Argent was secured by a mortgage on Ms. Edwardsen's property at 137 Fingerboard Road on Staten Island. Argent's mortgage was paid in full on or about July 5, 2006.

The main action involves the foreclosure of a subsequent mortgage executed on June 28, 2006, as the result of a refinancing agreement with plaintiff/third-party defendant Fremont Investment & Loan (hereinafter "Fremont") that is claimed to be in default. It was this refinancing which apparently facilitated the satisfaction of Argent's mortgage. Fremont commenced its foreclosure action on April 30, 2007, and issue was joined on or about September 5, 2007.[FN2] Defendant's answer, which included counterclaims and a third-party complaint, was served upon Argent on December 21, 2007 (Third-Party Plaintiff's Exhibit "A"). The third-party complaint seeks rescission of the mortgage transactions, termination of any security interest created thereunder, and a refund of all charges incurred in connection therewith. In addition, it alleges violations of the Federal Truth-in-Lending Act (hereinafter "TILA"), the Real Estate Settlement Procedures Act (hereinafter "RESPA"), General Business Law §349 and common-law aiding and abetting a fraud.In moving to dismiss the third-party complaint as against it, Argent claims that the alleged TILA and RESPA violations are time-barred by the one year statutes of limitations set forth in 15 USC §1640(e) and 12 USC §2614, respectively.[FN3] More specifically, Argent contends that the third-party plaintiff's causes of action against it accrued no later than February 22, 2006, the last day on which she was permitted to cancel the Argent loan as provided in its notice of the borrower's right to cancel (Argent's Reply, Exhibit "A"). Accordingly, Argent contends that the statutory period on the alleged TILA and RESPA causes of action expired on February 22, 2007. It is uncontroverted that the third-party complaint was not filed until September 5, 2007.

Pursuant to 15 USC §1640(e), any action under TILA (15 USC §1601 et seq.) may be brought in the United States district court, or any other court of competent jurisdiction within one year from the date of an alleged violation. However, the cited subsection expressly provides that a person may nevertheless assert a violation thereof "in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by recoupment or set-off in such action, except as otherwise provided by State law" (15 USC §1640[e]; see, Delta Funding Corp. v. Murdaugh, 6 AD3d 571 [2nd Dept. 2004]).

Pursuant to 12 USC §2614, any action under RESPA (12 USC §2607 et seq.) prohibiting kickbacks and unearned fees "incident to or part of a real estate settlement service involving a federally related mortgage loan" must also be brought in the United States district court or any other court of competent jurisdiction within one year from the date of the purported violation.

In the case at bar, defendant/third-party plaintiff Edwardsen contends that notwithstanding these statutes of limitation, her third-party claims under TILA and RESPA may be brought by way of recoupment in response to Fremont's foreclosure action, since "the principal from the Argent loan was rolled [over] into the Fremont loan." As a result, it is argued that the claims are still timely, and that the third-party plaintiff is entitled thereunder to recoup the fees and interest incorporated into the Fremont debt (Third-Party Plaintiff's Attorney's Affirmation p. 4).

The Court disagrees. Unlike the circumstances in Delta Funding, supra, the third-party [*3]plaintiff's TILA claims against Argent could only be asserted after the statute of limitations had expired by way of a defense, e.g., for recoupment, in a foreclosure action brought by Argent, and not as a third-party action against Argent in another lender's foreclosure action (cf., 15 USC §1640[e]).

In the alternative, Ms. Edwardsen argues that the fraudulent acts attributed to Argent operate to toll the statute of limitations on her TILA and RESPA claims. In this regard, our Court of Appeals has held that the doctrine of equitable estoppel may be invoked against a defendant when it would be unjust to allow it to assert a statute of limitations defense in circumstances where defendant's fraud, misrepresentation and/or deception has induced plaintiff to refrain from filing a timely action, and plaintiff can demonstrate its reasonable reliance on defendant's misconduct (see, Zumpano v. Quinn, 6 NY3d 666, 674 [2006]). Nevertheless, even here, it is incumbent on plaintiff to establish that the action was brought within a reasonable time after the facts giving rise to the estoppel have ceased to be operational (see, Fuchs v. New York Blood Center, Inc., 275 AD2d 240 [1st Dept.], lv denied, 95 NY2d 769 [2000]; cf., CPLR 203[g]).

In like manner, several federal district courts have indicated that the doctrine of equitable tolling may be applied to delay the commencement of the running of the statute of limitations under TILA §1640 (see, McAnaney v. Versus Astoria Financial Corp., 2007 WL 2702348 [EDNY]). In so concluding, these courts have held that the federal doctrine of equitable tolling may supersede an expired statute of limitations where a plaintiff can establish that: (1) the defendant concealed from him or her the existence of the cause of action during the statutory period; (2) he or she commenced the action within the statutory period from the time that he or she became aware of the claim; and (3) his or her continuing ignorance was not attributable to any lack of diligence on plaintiff's part (ibid.). Stated differently, under the equitable tolling doctrine, a federal statute of limitations does not begin to run until the plaintiff actually has or should have, by the exercise of reasonable diligence, become aware of his or her claim against a defendant (see, Council v. Better Homes Depot, Inc., 2006 WL 2376381 [EDNY]). In this context, a plaintiff may prove concealment by showing either that the defendant took affirmative steps to prevent plaintiff from discovering his or her legal claim, or that the defendant's wrongdoing was by its very nature self-concealing (ibid.; see, Barkley v. Olympia Mortgage Co., 2007 WL 2437810 [EDNY]).

Here, the defendant/third-party plaintiff alleges that she was subjected to multiple high cost refinancings of her mortgage, and that each application was processed and induced by the pertinent third-party defendants (Third-Party Complaint paras 38-63, 83-85). Thus, it is claimed that the Countrywide, Argent and Fremont mortgages were each facilitated by third-party defendants Summit Investments Loan Corp. d/b/a E-Island Mortgage, as well as individual defendants Lapera, LaMassa, Crapanzano and Alameddin, and that the third-party plaintiff relied in each case upon the false assurances and misrepresentations of these third-party defendants, who advised her that she should periodically refinance her mortgage; pay the prior mortgage with the loan proceeds; and then refinance again when her loan proceeds became exhausted (id. at paras 21-23, 46, 53). Finally, the third-party plaintiff asserts that this continuing fraudulent conduct caused her to remain unaware of the predatory nature of, e.g., the Argent transaction (id. at paras 83-85; Third-Party Plaintiff's Attorney's Affirmation p. 6).

Notwithstanding these claims, it must be observed in the context of Argent's motion to dismiss that while the third-party plaintiff makes numerous allegations against each of the non-moving third-party defendants, she fails to allege any specific fraudulent conduct on the part of Argent. Therefore, the third-party plaintiff's assertion that she refrained from filing a timely action due to fraudulent concealment by Argent is unavailing. Under these circumstances, the third-party plaintiff has failed to allege any acts against Argent which would equitably estop or toll the running of the statutes of limitations against it under TILA or RESPA. Accordingly, any cause of action against Argent for violating either federal statute is untimely and subject to dismissal.

The third-party complaint also alleges that Argent's failure to provide Ms. Edwardsen with the material disclosures required by 15 USC §1638(a) and its Regulation Z (12 CFR §226.18[e]) operated to extend her right to rescind to three years under 15 USC §1635(f) (Third-Party Complaint p. 11). In its motion to dismiss, Argent maintains that the third-party plaintiff's statutory right to [*4]rescind expired on February 22, 2006, the third business day after the delivery to her of, e.g., the required notice of the borrower's right to cancel (see, 15 USC §1635[a]).

TILA provides borrowers with two separate remedies for disclosure violations: (1) rescission pursuant to 15 USC §1635, and (2) damages pursuant to15 USC §1640 (see, Eubanks v. Liberty Mortgage Banking Ltd., 976 FSupp 171, 174 [EDNY 1997]). 15 USC §1638(a) provides, as is relevant, that for each consumer credit transaction, the creditor is required to make any number of financial disclosures, including the finance charge expressed as an annual percentage rate.[FN4] In addition, 15 USC §1635(f) operates to extend an obligor's time to rescind to three years after the earlier of either (a) the date on which the transaction was consummated or (b) the sale of the subject property, notwithstanding the creditor's failure to deliver to the obligor the information and forms required to be disclosed under subdivision (a) thereof. However, it is well settled that the right of rescission is completely extinguished at the end of the three-year period, since 15 USC §1635(f) operates as more than a mere statute of limitations on the action to rescind, but also governs the life of the underlying right of rescission (see, Beach v. Ocwen Federal Bank, 523 US 410 [1998]).

Pertinent to the foregoing, Argent has provided this Court with a copy of the note, mortgage, borrower's notice of the right to cancel and HUD-1A Settlement Statement, each of which appears to have been executed by the defendant/third-party plaintiff.[FN5] In this case, it is undisputed that the Argent loan transaction was consummated on February 17, 2006. Accordingly, any disclosure violation by Argent would render the third-party plaintiff's action to rescind timely. However, being an equitable doctrine, the Court has discretion to condition the mortgagor's right of rescission upon his or her tender of the loan principal to the creditor (see, Berkeley Federal Bank & Trust v. Siegel, 247 AD2d 498 [2nd Dept. 1998]). Moreover, TILA anticipates that upon an obligor's exercise of his or her right to rescind, any security interest given by the obligor will become void, and the creditor will be required in the first instance to perform its obligations, e.g., to return any money or property and take any necessary action to terminate the security interest created under the transaction (ibid.; 15 USC §1635[b]). Here, the Argent mortgage was paid in full by the third-party plaintiff upon her refinancing with Fremont, and Argent's security interest in the property has already been released. Accordingly, if the third-party plaintiff can rebut Argent's claim of proper disclosure, she may be entitled to the return of any interest and fees which she may have paid to Argent.

In moving to dismiss the third-party plaintiff's claim under General Business Law §349 for failure to state a cause of action [FN6], Argent maintains that the third-party plaintiff's "own mortgage broker was likely responsible for any misrepresentation." In response to her claim that the third-party defendants falsified her loan application, Argent maintains that "the only misrepresentation in this matter is [the third-party plaintiff's] apparent misrepresentation of her income to Argent" (Third-[*5]Party Defendant's Attorney's Affirmation p. 9). Argent further maintains that the third-party plaintiff's execution of documents, including the note and mortgage plainly displaying the full amount of the required monthly payments, reveal that it was she who "was not acting... reasonabl[y]" in contracting the loan with Argent (ibid.).

On a motion to dismiss for failure to state a cause of action pursuant to CPLR §3211(a)(7), the sole criterion is whether factual allegations are discernible from the four corners of the complaint which, taken together, manifest any cause of action cognizable at law. In such circumstances, the court must accept the facts alleged in the complaint and the papers submitted in opposition to the motion as true, and accord plaintiff the benefit of every possible favorable inference (see, Aranki v. Goldman & Associates, LLP., 34 AD3d 510 [2nd Dept. 2006]).

To state a viable cause of action under General Business Law §349, a plaintiff must allege that: (1) the challenged act or practice was consumer-oriented; (2) it was misleading in a material way; and (3) plaintiff was injured as a result of the deceptive act (see, Stutman v. Chemical Bank, 95 NY2d 24 [2000]). Notably, neither an intent to defraud nor justifiable reliance is an element of the statutory claim (id. at 29).

In this case, the third-party complaint alleges that the third-party defendants engaged in practices which were misleading, deceptive and contrary to public policy through a series of wrongful acts, including, without limitation, inflating the pleader's income and falsifying her occupation on the loan application in order to create the appearance that she could afford the loan, and/or failing to disclose how the loan proceeds were to be disbursed (Third-Party Complaint paras 97-98). As a result thereof, the third-party plaintiff claims to have paid excessive fees, interest and other charges, and is now threatened with the loss of her home. It is also alleged that such practices have had and will continue to have a severe negative impact on homeowners and potential homeowners throughout the state (id. at paras 84-85, 100-101).

Despite the third-party plaintiff's collective allegations against the third-party defendants as a whole, the third-party complaint is deficient in failing to allege any specific act by Argent that was misleading in a material way. In fact, the third-party complaint admits that "the loan application for the Argent loan states that it was prepared by Marc LaMassa as employee of E-Island Mortgage" (Third-Party Complaint para 69). As a result, the third-party complaint fails to sufficiently allege a claim for damages under General Business Law §349 (see, Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 NY2d 20, 25-26 [1995]; Dowd v. Alliance Mortgage Co., 32 AD3d 894 [2nd Dept. 2006]). Nonetheless, the third-party plaintiff asserts that "the documentary evidence that will prove [her] claims [are] in Argent's possession", and that the Court should not permit dismissal of her §349 claim until she "receives, through disclosure, the documentary evidence she needs" (Third-Party Plaintiff's Attorney's Brief p. 9). Under these circumstances, this branch of third-party defendant's motion will be denied without prejudice to renewal upon the completion of discovery (CPLR 3211[f]).

At common law, a cause of action for aiding and abetting a fraud required a plaintiff to allege: (1) the existence of an underlying fraud; (2) actual knowledge of the fraud by the aider and abettor; and (3) substantial assistance by the aider and abettor in the achievement of the underlying fraud (see, Lerner v. Fleet Bank, N.A., 459 F3d 273, 292 [2nd Cir. 2006]; Mazzaro de Abreu v. Bank of America Corp., 525 FSupp2d 381, 387 [SDNY 2007]). In this context, substantial assistance is said to be present where a given defendant affirmatively assists, helps to conceal or, by virtue of failing to act when required to do so, enables the fraud to proceed (see, Mazzaro de Abreu v. Bank of America Corp., supra at 388). In order to be actionable, such substantial assistance must also be a proximate cause of the harm on which the primary liability is predicated (ibid.). In this regard, a prima facie case of fraud requires a plaintiff to plead the misrepresentation of a material existing fact, falsity, scienter, deception, and injury. In order to avoid dismissal under CPLR 3211(a)(7), it is also required that each of these essential elements be supported by factual allegations sufficient to satisfy the "detail" requirement of CPLR 3016 (see, Williams v. Upjohn Health Care Services, Inc., 119 AD2d 817 [2nd Dept. 1986]).

Turning to the allegations of aiding and abetting against Argent, the movant contends that [*6]the third-party plaintiff has failed to allege either its actual knowledge of any fraud, or the making of any misrepresentations directly to the third-party plaintiff (Third-Party Defendant's Attorney's Affirmation para 31). Argent further asserts that the third-party plaintiff personally verified the loan application inflating her income, and subsequently executed various documents which accurately disclosed the material terms of the loan (id. at paras 31, 34). Finally, Argent maintains that there is no evidence to suggest that it had prior knowledge of any alleged false representations in the application tendered to it by co-defendant E-Island Mortgage (id. at para 34).

With respect to the underlying claim of fraud, the Third-Party Complaint at, inter alia, paragraphs 115-116, alleges that the third-party defendants willfully and knowingly made false and materially misleading representations to the third-party plaintiff, including, e.g.: the inducement to believe that the loan would lead to an affordable mortgage; advising her that she did not need an attorney to represent her interests; concealing the manner in which the loan proceeds were to be disbursed by failing to provide an HUD-1 Settlement Statement before the closing; falsifying her income and occupation on the loan application to create the appearance that she could afford the Argent loan; and requiring her to pay grossly unreasonable fees and charges for the loan transaction. Thus, it is claimed that, unbeknownst to her, the loans were fraudulently arranged and extended based on the value of her collateral rather than her ability to re-pay, which resulted in a default and caused her to sustain serious financial and emotional injury.

As to Argent, the third-party plaintiff alleges in the Third-Party Complaint at, inter alia, paragraphs 125-129, that the movant knowingly and willfully aided and abetted the aforementioned fraudulent transactions, thereby enabling it to take a security interest in her property and wrongfully collect fees and other income. More specifically, it is claimed that Argent provided substantial assistance to its co-defendants by (1) providing the funds to originate the mortgage loan, (2) knowingly approving the submission of false loan applications, and (3) failing to exercise adequate due diligence before accepting a mortgage on the third-party plaintiff's property. It is further claimed that Argent had actual knowledge of the fraud and/or recklessly disregarded the existence of the fraud through sub-minimal underwriting standards. As a result of this misconduct, the third-party plaintiff claims to have suffered serious injury.

Even accepting all of Ms. Edwardsen's allegations as true, and affording the third-party plaintiff the benefit of every possible favorable inference, she has failed to allege actual knowledge of the purported fraud with the particularity necessary to survive the heightened pleading requirements of CPLR 3016 (b) (see, Lerner v. Fleet Bank, N.A., supra at 292-293). Although the third-party plaintiff claims that Argent had actual knowledge of the fraud allegedly perpetrated upon her, the third-party complaint fails to plead any facts with particularity to support that claim (ibid.). In fact, it is alleged in the alternative that Argent either had actual knowledge of the fraud or recklessly disregarded its existence through its failure to exercise proper care either in setting its underwriting standards or authenticating her application for a mortgage (Third-Party Complaint at para 128). Under these circumstances, the third-party complaint insufficiently alleges a cause of action against Argent for aiding and abetting the fraud.

Finally, Argent maintains that the third-party complaint fails to state a cause of action for unjust enrichment. To state a claim for unjust enrichment, a plaintiff must allege that: (1) defendant benefitted from the transaction; (2) the benefit was incurred at plaintiff's expense; and (3) that equity and good conscience require restitution (see, Mazzaro de Abreu v. Bank of America Corp, supra at 397; Whitman Realty Group, Inc. v. Galano, 41 AD3d 590 [2nd Dept. 2007]). Thus, unjust enrichment constitutes an "amorphous" cause of action which exists within the penumbra of quasi or implied contract (Mazzaro de Abreu v. Bank of America Corp, supra at 397). It is in this context that the courts are empowered to infer the existence of an implied contract to prevent an entity from unjustly enriching itself at another party's expense (ibid.). However, a cause of action to recover damages for unjust enrichment is not viable where, as here, it is undisputed that the third-party plaintiff and Argent entered into an express agreement, in this case a note and mortgage (see, Lum v. New Century Mortgage Corp., 19 AD3d 558, 559-560 [2nd Dept. 2005], lv denied, 6 NY3d 706 [2006]).

[*7]Accordingly, it is

ORDERED that the motion to dismiss by third-party defendant Argent Mortgage Co. is granted with respect to each of the causes of action except the purported violation of the General Business Law §349 and third-party plaintiff's right of rescission; and it is further

ORDERED that each of these causes of action and any such cross claims against the moving party are hereby severed and dismissed; and it is further

ORDERED that the balance of the motion is denied without prejudice to renewal following completion of discovery; and it is further

ORDERED that the Clerk enter judgment accordingly.




Dated: June 18, 2008 Footnotes

Footnote 1:Argent's mortgage is the second of three loans to the defendant/third-party plaintiff processed by third-party defendants E-Island Mortgage, Cynthia Lapera, Marc LaMassa, Joseph Crapanzano and Nassar Alameddin (Third-Party Complaint para 42-63). The mortgage with Countrywide was the first (ibid.).

Footnote 2:A judgment of foreclosure and sale was granted and subsequently vacated pursuant to CPLR 5015(a)(1) in a prior Decision and Order of this Court dated February 26, 2008.

Footnote 3:The merits of the alleged TILA and RESPA violations against Argent are not before the Court on this motion to dismiss pursuant to CPLR 3211(a)(1), (7), (10).

Footnote 4:While 15 USC §1638 specifically excludes open-ended credit plans, the subject loan is not of this type.

Footnote 5:Nevertheless, Argent's copy of the purported borrower's notice of the right to cancel and HUD-1A Settlement Statement are only attached to their reply papers. A certificate of acknowledgment attached to an instrument such as a mortgage raises the presumption of due execution, which presumption can be rebutted after being weighed against any evidence adduced to show that the instrument was not duly executed (see, 39 Coll Point Corp. v. Transpac Capital Corp, 22 AD3d 663 [2nd Dept. 2005]). However, by attaching said documents to their reply affirmation rather than their original affirmation in support of the instant motion, the third-party plaintiff is denied the opportunity to dispute the documents' authenticity. Accordingly, the Court declines to consider these documents of unproven authenticity.

Footnote 6:Argent has also moved to dismiss the third-party complaint pursuant to CPLR 3211(a)(10), i.e., failure to join a necessary party. However, since no facts have been stated in support of this claim, the Court need not address it.