Jones v Bank of Am. Natl. Assn.

[*1] Jones v Bank of Am. Natl. Assn. 2013 NY Slip Op 51288(U) Decided on July 29, 2013 Supreme Court, Kings County Schmidt, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 29, 2013
Supreme Court, Kings County

Angil Jones and PORTIA JOSEPH, Plaintiffs,

against

Bank of America National Association, OTN Enterprise Inc., ORA TVILLI, USA HOME FINANCIAL LLC, ISAAC KLEINBART, DANIEL EQUITIES, LLC, 301 VAN BUREN LLC, ARIEL NEMZEYANO, YOSEF ABERJEL, NH APPRAISAL ASSOCIATES INC, NAFTALI HOROWITZ, ADRIAN A. ELLIS, ESQ., YOUNG, KLEIN & LONTOS, P.C., DREW LONTOS, ESQ. and JOSEPH KUNSTLINGER, ESQ., Defendants.



31990/2008



Plaintiffs' Attorney: David Hernandez, Esq., 26 Court Street, Suite 2707, Brooklyn, NY 11242

Defendants' Attorney: Reed Smith, 599 Lexington Avenue, 26th Floor, New York, NY 10022

David I. Schmidt, J.

Defendants 301 Van Buren LLC (Van Buren) and Yosef Aberjel (Aberjel), move, pursuant to CPLR 3211 (a) (7), for an order dismissing the complaint. Plaintiffs oppose the motion.

This action arises from allegations that plaintiffs, first time home buyers, fell victim to a fraudulent and/or predatory sale and lending scheme that targeted minority purchasers. Based on these allegations, plaintiffs assert six causes of action against various defendants of which only the first three are asserted against Van Buren, the 50% owner of the premises ultimately sold to plaintiffs, and Aberjel, Van Buren's principal. Against these (and all other) defendants, the complaint alleges a violation of General Business Law (GBL) § 349 (first cause of action); fraud (second cause of action); and aiding and abetting fraud (third cause of action).

In their second amended complaint (Complaint or Compl.), plaintiffs allege that Van Buren and Aberjel (as well as the other 50% owner of the premises and its principal), "engaged in a pattern and practice of fraud, falsehood and deception in that, upon information and belief, said defendants constructed substandard and (sic) houses on land unsuitable for building, sold grossly overpriced and damaged properties supported by intentionally inflated financing and utilized a network of purported real estate brokers/salespersons, mortgage brokers, appraisers, lenders and other persons in their fraudulent schemes."

I.Factual Background

This action ensues from plaintiffs' purchase of a two-family residence located at 28 St. Andrews Place in Brooklyn and the execution of two mortgages by plaintiffs in the aggregate [*2]amount of $629,300.00, a transaction which plaintiffs characterize as a deceptive and fraudulent scheme by the various defendants to extract the benefits associated with the issuance of the mortgage loan without regard to plaintiffs' limited financial means and ability to repay. According to the Complaint, in the late spring of 2007, plaintiff Angil Jones, who was interested in purchasing a home for herself and her daughter, Portia Joseph, answered a newspaper advertisement from defendant OTN Enterprise Inc. (OTN) and Ora Tvilli (Tvilli) who were acting as brokers for the sellers. Plaintiffs allege that the advertisement "claimed that [OTN and Tvilli] could help first time home buyers with all aspects of purchasing a house." Jones called the telephone number in the advertisement and spoke with Tvilli, who informed Jones that "she had many houses for sale and could help her obtain the financing." Tvilli showed Jones some houses and informed her of a newly built house at 28 St Andrews Place. Upon seeing the house sometime in September 2007, Jones conveyed to Tvilli her concerns about her being able to afford the property. Tvilli is alleged to have stated that she "would arrange the mortgage financing for the house at a rate that [Jones] could afford" and that she "could help [Jones] buy the house with no money down and also arrange to finance the complete closing costs."

At the time, Jones also expressed concern that about the abandoned remnants of a repair shop next to the property but was told by Tvilli that the sellers of the house owned the adjacent property and were planning to clean up the area and build a new house on the lot.

After Jones repeated her concern about her ability to afford to purchase the house, Tvilli recommended that plaintiffs speak to defendant Isaac Kleinbart of USA Financing LLC (USA) about financing, allegedly stating that "she was certain that [Kleinbart] could find a way to get plaintiffs into the house." Tvilli thereafter contacted Kleinbart by telephone and connected him with plaintiffs, who advised him that together they earned approximately $35,000 in annual income, had approximately $5,000 combined in savings and that they did not believe they had a good credit rating. Kleinbart is alleged to have responded that he did not "see any problem" and that he could "do magic." Plaintiffs thereafter met with Kleinbart in person at USA's office on or about September 18, 2007. Kleinbart stated that he would use Joseph to qualify for the mortgage loans, even though her annual income was no more than $25,000. Kleinbart further stated that plaintiffs "were in luck" as USA had started a new program with Bank of America (BofA) whereby "first time home buyers like the plaintiffs could obtain full financing of the entire purchase price and closing costs." Kleinbart is also alleged to have told plaintiffs "not to worry that they would be able to afford the monthly mortgage payment and that he would arrange to have the house refinanced within three (3) to six (6) months after the closing and the monthly payment would be even lower." Joseph was thereafter instructed by Kleinbart to sign several forms that were part of a large stack of documents, telling Joseph not to bother reading the documents as they were complicated, contained legal terminology which she would not understand and would take her a full day to read. Kleinbart allegedly told Joseph that "he would fill out the forms later so she should not worry about anything." Tvilli, who was present at the meeting with plaintiffs and Kleinbart, recommended that plaintiffs hire defendant Adrian A. Ellis, Esq. (Ellis) as their attorney and thereafter contacted Ellis to tell him that "she had a client for him."

Plaintiffs allege that during the meeting at the USA office, Joseph informed Kleinbart that she worked as a waitress, attended some college classes and had a few hundred dollars in savings [*3]and no assets. On the loan application completed by USA however, Joseph was listed as being employed for four years and two months by a company named CVD Management, holding a title of "controller," and had a base monthly income of $9,886 with additional monthly income of $1,125, as well as liquid assets totaling $109,690 consisting of cash and a checking account with North Fork Bank. Plaintiffs maintain that they did not provide this false information nor were they aware that such information was entered on the loan application.

At a subsequent meeting with Ellis, plaintiffs were instructed to sign the contract of sale and to write out a check for $5,000 as a down payment. Plaintiffs allege that Ellis did not explain the contract of sale in detail to them. Ellis informed plaintiffs that the purchase price for the house had been increased to $700,000 "because the attorneys fees, closing costs and other expenses had been rolled into the mortgage." Plaintiffs allegedly told Ellis "that they were informed and understood that the price of the house was $588,000 and that they were very concerned because they lacked any additional funds to purchase the house." Ellis advised plaintiffs "not to be concerned about this as he was looking out for their interests."

The closing for the property took place on December 11, 2007 at the office of defendant Young, Klein & Lontos, P.C., the attorney for the sellers, defendants Van Buren and Daniel Equities (the other 50% owner of the premises). At the closing, plaintiffs were told by Ellis to sign a stack of documents and that "there was no need to read them." Ellis did not explain any of the documents to plaintiffs. Plaintiffs signed two mortgages in favor of BofA, the first securing a loan of $533,850.00 payable over 30 years at a rate of 6.5% and the second securing a loan of $95,450.00 with an interest rate of 7.19%. Combined monthly payments of principal and interest under the two mortgages totaled $4,017.39, far exceeding the claimed $2,000.00 monthly net income of Joseph. Further, the second mortgage contained a 15-year balloon rider whereby the entire remaining principal, totaling $71,632.95, would become due and payable on the maturity date of February 1, 2023.

Plaintiffs allege that Tvilli, OTN, Kleinbart and USA knew of plaintiffs' desire to own a home and pressured them into the purchase of the house, even though these partiesas well as BofA knew that the mortgage loans used to finance the purchase were grossly unaffordable and failed to inform plaintiffs of this fact. Plaintiffs further allege that BofA permitted, consented and encouraged the generating of mortgage loans by its brokers and agents, namely Kleinbart and USA, through misrepresentation and deception and that the attorneys at the closing facilitated the closing of the purchase and mortgage loans by permitting, allowing and directing the sellers and the buyers to execute a fraudulent HUD-1 so the transaction would be funded by BofA. Additionally, plaintiffs allege that the intentional and/or negligent appraisal of the property by NH Appraisal Associates, Inc. and its principal, which improperly inflated the property's actual value, facilitated the fraud that was committed on the plaintiffs.

As to the moving defendants, plaintiffs allege that Van Buren and Aberjel represented to them that the house was suitable for living in and was without defects or dangerous conditions. Plaintiffs claim that when they moved into the house following the closing, they discovered serious defects and hazards that the moving defendants had taken active steps to conceal.[FN1] [*4]

In support of their first and second causes of action, plaintiffs allege that Aberjel and Van Buren violated GBL § 349 and committed fraud by making false representations about the condition of plaintiffs' home and concealing unsafe, substandard and hazardous property conditions. In support of their third cause of action, plaintiffs allege that Aberjel and Van Buren aided and abetted the fraudulent scheme by representing to the plaintiffs that the house was suitable for living in and was without any defects or dangerous conditions.

II.Argument

When determining a motion to dismiss, the court must "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory." Arnav Indus., Inc. Retirement Trust v Brown, Raysman, Millstein, Felder & Steiner, L.L.P., 96 NY2d 300, 303 (2001). "Whether a plaintiff can ultimately establish its allegations is not part of the calculus." Sokol v Leader, 74 AD3d 1180, 1181 (2d Dept 2010) (citing EBC I, Inc. v Goldman Sachs & Co., 5 NY3d 11, 19 [2005]). However, the court will not accept as true factual and legal conclusions that are "either inherently incredible or flatly contradicted by documentary evidence." Ullmann v Norma Kamali, Inc., 207 AD2d 691, 692 (1st Dept 1994).

As a threshold matter, moving defendants contend that the complaint, as asserted against Aberjel, must be dismissed outright. In making this argument, defendants highlight the fact that nowhere in the amended complaint is it alleged that Aberjel personally communicated or had any direct dealings with plaintiffs in any capacity, much less in his individual capacity. As attested to in his affidavit submitted in support of the instant motion, Aberjel's only contact with plaintiffs was at the closing for the subject premises where he appeared solely in his representative capacity for Van Buren. See affidavit of Yosef Aberjel, ¶ 4. As such, defendants argue that there could have been no detrimental reliance by plaintiffs on any communication made by Aberjel in his individual capacity. Consequently, defendants assert that the claims against Aberjel must be dismissed.

In their opposition, plaintiffs do not controvert or otherwise respond to this argument. Still, the court is not persuaded that it can dismiss the claims against Aberjel on this ground alone. It is well settled that "a corporate officer who participates in the commission of a tort may be held individually liable, regardless of whether the officer acted on behalf of the corporation in the course of official duties and regardless of whether the corporate veil is pierced." Peguero v 601 Realty Corp., 58 AD3d 556, 558 (1st Dept 2009) (citation and internal quotation marks omitted). Accordingly, the averments in Aberjel's affidavit do not, as a matter of law, provide a basis to dismiss the causes of action asserted against him,.

Therefore, the court turns to the arguments that moving defendants make regarding the sufficiency of the allegations supporting each of the individual causes of action.

A.GBL § 349

GBL § 349 states, in pertinent part, that deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are unlawful.A plaintiff asserting a GBL § 349 cause of action must plead and prove that a defendant has [*5]engaged in: (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice. Stutman v Chemical Bank, 95 NY2d 24, 29 (2000) (citation omitted).

Plaintiffs assert that the Complaint pleads each of the aforementioned elements of this claim by alleging that: "(1) Van Buren made misrepresentations to Plaintiffs about the dangerous conditions in the house — misrepresentations upon which Plaintiff relied upon to support the inflated the value of the Property; (2) Van Buren's wrongful acts could potentially affect the viability of the housing market and thus the public at large; and (3) Plaintiffs were left responsible for a mortgage they could not afford and would not have agreed to had they not been misled." See plaintiffs' memorandum of law (plaintiffs' br.), at 3; Compl. ¶¶ 130 (h) (i), 132.

In support of dismissal, defendants argue that Section 349 does not apply to private contract disputes that are unique to the parties and that do not otherwise impact the consuming public at large. More specifically, defendants contend that an individual real property transaction like the one at issue here, is just such a private transaction and cannot be the subject of a deceptive practices claim. Defendants further contend that since only plaintiffs were affected by the alleged misrepresentations concerning the condition of the home, plaintiffs' conclusory allegation that "defendants' practices have had and may continue to have a broad impact on consumers throughout New York State and throughout the United Stated of America," (Compl. ¶ 13) is insufficient to state a cause of action under GBL § 349.

In opposition, plaintiffs insist that the purchase of a home is a typical consumer transaction that is within the scope of the protections of GBL § 349. Plaintiffs point to the court's January 12, 2010 decision in which the court considered motions to dismiss brought by the lender, mortgage broker and appraiser defendants in this action. In denying the motions with respect to the Section 349 claim, this court stated that: "deception and misrepresentation in home buying, appraising and financing services adversely affect the public at large insofar as the acts inevitably lead to mortgage loans which are doomed to failure and which adversely effect the housing market. See affirmation of Hal R. Ginsburg, dated November 7, 2012, Ex. C (January 12, 2010 decision), at 11.

Significantly, however, the court made this observation only as to parties who were named as defendants because of their alleged role in convincing plaintiffs to enter into mortgages they could not afford, which allegedly netted these defendants high up-front fees.[FN2] In contrast, and by their own admission, plaintiffs' allegations with respect to the moving defendants center on alleged misstatements purportedly made with respect to the condition of the home. See affirmation of Djinsad Desir, dated February 28, 2013, ¶ 7 ("Van Buren's misrepresentations about the condition of the home induced Plaintiffs to purchase the property.").

Given the distinct nature of these allegations, the court is persuaded that the authorities [*6]relied on by moving defendants, especially Canario v Gunn, 300 AD2d 332 (2d Dept 2002), are

controlling and require dismissal of the claim. In Canario, plaintiffs alleged that defendant real estate agents had advertised that a property was 1.5 acres in size, when, in fact, it was .78 acres in size. Id. at 333. Plaintiffs, the buyers of the property, brought a deceptive practices claim. Id. In affirming the lower court's dismissal of the claim, the Second Department held that private contract disputes unique to the parties do not fall within the ambit of the statute, and that the misrepresentation of the acreage had the potential to affect only a single real estate transaction involving a single piece of property. Id. Here, as well, even drawing all reasonable inferences in favor of plaintiffs, the only parties that could have been affected by moving defendants' alleged misrepresentations about the suitability of the home, were the plaintiffs. Consequently, there was no impact on the public at large.

The legal authority on which plaintiffs rely, Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20 (1995), does not support their contention that moving defendants' actions affect the public at large. In Oswego, two not-for profit pension funds alleged deceptive practices against a bank to recover lost interest arising from defendant bank's alleged failure to inform plaintiffs that the accounts they opened were for for-profit commercial entities and would not receive interest on deposits in excess of $100,000. Id. at 23-24. Significantly, the Court found that the bank engaged in consumer-oriented activity because the bank dealt with plaintiffs in the same manner as any customers entering the bank to open a savings account. In this connection, the Court observed that the bank furnished the plaintiffs with standard documents presented to regular customers who were opening accounts. Id. at 26. As such, the account openings were not unique to the parties, were not private in nature, and potentially affected similarly situated customers. Id. at 26-27. By contrast, in the instant case, the fact that plaintiffs' home was constructed in a defective fashion, contrary to Van Buren's alleged representations otherwise, carried the potential to affect only a single real estate transaction involving a single piece of property.

Accordingly, plaintiffs' cannot maintain their GBL § 349 claim against the moving defendants and the claim is dismissed.

B.Fraud

Succinctly stated, the elements of fraud are (1) a misrepresentation; (2) falsity; (3) scienter; (4) reliance; and (5) injury or damage. Lama Holding Co. v Smith Barney Inc., 88 NY2d 413, 421 (1996). Each element must be supported by sufficient factual allegations to satisfy CPLR 3016 (b). Accordingly, for the complaint to be deemed sufficient to withstand a motion to dismiss, the name or names of the person or persons making the misrepresentations, when the misrepresentations were made and the circumstances constituting the wrong must be stated in sufficient detail to give a defendant a fair opportunity to prepare a defense. See e.g. New York Fruit Auction Corp. v City of New York, 81 AD2d 159, 161 (1st Dept 1981), affd 56 NY2d 1015 (1982). Conversely, a cause of action for fraud must be dismissed where the complaint makes "bare allegations of fraud without any allegation of the details constituting the wrong." Gervasio v Di Napoli, 126 AD2d 514, 514 (2d Dept 1987).

Plaintiffs take the position that the Complaint adequately alleges facts to support all of the elements of a fraud claim. Plaintiffs note (see plaintiffs' br. at 5-6) that the Complaint specifically alleges that Van Buren "represented to the plaintiff that the house was suitable for [*7]living in and was without defects or dangerous conditions. Such representations were false . . . when they were made." Compl. ¶ 136. Further, the Complaint alleges that "[t]he representations were made for the purpose of inducing the plaintiffs to enter into the agreement to purchase the home" and plaintiffs "believed them to be true and relying upon them they were induced to enter into the purchase contract, close title, accept a deed of conveyance and enter into the mortgage loans." Id., ¶¶ 136-37.

However, plaintiffs omit the most basic information about the alleged misrepresentations they attribute to Aberjel and Van Buren. In this regard, the Complaint is completely silent as to when and where any of the purported misstatements were made. This is especially problematic given that, prior to the closing, there was never any direct communication or other interaction between plaintiffs and moving defendants, a fact that plaintiffs do not dispute. See Aberjel aff., ¶¶ 4-6. The detailed allegations in the Complaint concerning other defendants' alleged misstatements only serves to underscore the inadequacy of the pleading with respect to Aberjel and Van Buren. In the court's view, the fraud allegations fall far short of the level of specificity required to sustain a fraud claim. See Eastman Kodak Co. v Roopak Enters., 202 AD2d 220, 222 (1st Dept 1994) (dismissing fraud counterclaim because defendant failed to allege either the time or place of the alleged misrepresentations and failed to identify the person responsible for the misstatement). Consequently, the claim is dismissed.[FN3]

There is a separate reason why this claim cannot be maintained. It is well-settled in New York that the proper measure of damages in a fraud action is the actual pecuniary loss sustained as the direct result of the wrong, the so-called "out of pocket" rule. See Lama Holding Co., 88 NY2d at 421. In this case, as the court noted during the oral argument, plaintiffs fail to articulate any out-of-pocket damages. See Compl. ¶ 141. Indeed, plaintiffs have acknowledged to the court that they have not made any mortgage payments. Because, plaintiffs fail to allege any cognizable damages that would satisfy the out-of-pocket rule, the claim is dismissed.

C.Aiding and Abetting Fraud

"In order to plead properly a claim for aiding and abetting fraud, the complaint must allege: (1) the existence of an underlying fraud; (2) knowledge of this fraud on the part of the aider and abettor; and (3) substantial assistance by the aider and abettor in achievement of the fraud. Actual knowledge of the fraud may be averred generally. Substantial assistance exists where (1) a defendant affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables the fraud to proceed, and (2) the actions of the aider/abettor [*8]proximately caused the harm on which the primary liability is predicated" Stanfield Offshore Leveraged Assets, Ltd. v Metropolitan Life Ins. Co., 64 AD3d 472, 476 (1st Dept 2009).\

Furthermore, and with respect to the level of detail required to maintain this cause of action, it has been held that:

"Where liability for fraud is to be extended beyond the principal actors, to those who, although not participants in the fraudulent scheme, are said to have aided in and encouraged its commission, it is especially important that the command of CPLR 3016 (b) be strictly adhered to. This is because the alleged aider and abettor, by hypothesis, has not made any fraudulent misrepresentation and should not be called to account for the intentional tort of another unless the circumstances of his connection therewith can be alleged in detail from the outset. The nexus between the aider and abettor and the primary fraud is made out by allegations as to the proposed aider's knowledge of the fraud, and what he, therefore, can be said to have done with the intention of advancing the fraud's commission. It is not made out simply by allegations which would be sufficient to state a claim against the principal participants in the fraud."

National Westminster Bank v Weksel, 124 AD2d 144, 149 (1st Dept 1987), lv. denied, 70 NY2d 604 (1987).

Plaintiffs assert that they have properly alleged this claim based on allegations that defendants engaged in a fraudulent scheme and that Aberjel and Van Buren aided and abetted this scheme by representing to the plaintiffs — at the behest of the other defendants — that the house was suitable for living in and was without any defects or dangerous conditions. See plaintiffs' br., at 6-7. However, as the court already concluded in the previous section of this decision, the circumstances surrounding Aberjel and Van Buren's representations to plaintiffs concerning the condition of the home, are not plead with the specificity required by CPLR 3016(b). Consequently, the allegations supporting defendants' substantial assistance in aid of the fraud are fatally deficient and warrants dismissal of this cause of action.

Accordingly, it is

ORDERED that defendants 301 Van Buren LLC and Yosef Aberjel's motion to dismiss the complaint as asserted against them, is granted.

Dated: July 29, 2013

ENTER:

______________________

J.S.C. Footnotes

Footnote 1: The defects defendants purportedly discovered include faulty electric wiring, lack of insulation, incomplete cracked Sheetrock, improper dry-wall installation, loose and defective baseboard heating units, leaks, poor drainage, dampness and mold in the basement.

Footnote 2:

Even so, the appellate division (with little in the way of elaboration) reversed this court and dismissed the 349 claim (as well as the other claims) asserted against the lender, Bank of America, N.A., finding that the amended complaint "does not allege any deceptive or misleading conduct on the part of the appellant within the meaning of General Business Law § 349." Jones v OTN Enterprise, Inc., et al, 84 AD3d 1027, 1028 (2d Dept 2011) (citations omitted).

Footnote 3: Plaintiffs appear to have abandoned any claim based on allegations that Van Buren and Aberjel "failed to dismantle and remove the abandoned repair shop structure" and other debris from the lot adjacent to their property, as had been represented to them by Tvilli. In any event, courts have held that the failure to keep a promise of future intent is not a basis for an action in fraud. Cerabono v Price, 7 AD3d 479, 480 (2nd Dept 2004) ("[t]he general rule is that fraud cannot be predicated upon statements that are promissory in nature at the time they are made and which relate to future actions or conduct") (citations omitted). As to any liability based on omissions, plaintiffs do not plead the existence of any fiduciary duty between them and the sellers. Nor do they allege facts, other than in conclusory fashion, that would support the invocation of the "special facts" doctrine.