JPMorgan Chase Bank, N.A. v Sapienza

[*1] JPMorgan Chase Bank, N.A. v Sapienza 2022 NY Slip Op 50841(U) Decided on August 30, 2022 Supreme Court, Suffolk County Hensley, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 30, 2022
Supreme Court, Suffolk County

JPMorgan Chase Bank, N.A., Plaintiff(s),

against

Richard Sapienza, Defendant(s).



Index No. 604956/2019


ATTORNEY FOR PLAINTIFF
MCCALLA RAYMER LEIBERT PIERCE LLC
Sean D. Howland, Esq., of counsel
420 Lexington Avenue - Suite 840
New York, New York 10170

ATTORNEY FOR DEFENDANT
BARNEY J. GIANNONE & ASSOCIATES, P.C.
Barney J. Giannone, Esq., of counsel
210 California Avenue
Port Jefferson, New York 11777


Paul M. Hensley, J.

Upon e-filed documents 29-36, read and considered on plaintiff's motion seeking a stay of this action, it is hereby

ORDERED that the motion be, and it hereby is, DENIED.

The decision to grant or deny a stay under CPLR 2201 is a discretionary determination (Matter of Hersh, 198 AD3d 773, 156 NYS3d 71 [2d Dept 2021]). Plaintiff seeks a discretionary stay because plaintiff believes that controlling Appellate Division case law will adversely affect plaintiff's case, but the Court of Appeals will, in plaintiff's estimation reverse Bank of Am., N.A. v Kessler (202 AD3d 10, 160 NYS3d 277 (2d Dept 2021). As set forth below, this Court sees substantial arguments that prevent it from sharing plaintiff's forecast about [*2]the Court of Appeals' likely action.

Plaintiff filed this "straightforward residential foreclosure action" (Affirmation of Sean Howland, Esq., in Support of Plaintiff's Motion for a Stay Pursuant to CPLR § 2201 [Dkt. 29] [hereafter, Pl. Aff.] at ¶ 2). "Plaintiff is cognizant that — at present — the Second Department's decision in Kessler would likely preclude an award of summary judgment to Plaintiff, or result in an adverse ruling at trial" (Pl. Aff. [Dkt. 29] at ¶ 10).

Plaintiff seeks a stay of this action pending the outcome at the Court of Appeals of the Kessler appeal, setting for facts or arguing with warp drive hyperbole that "Kessler represented a world-shifting deviation from prior precedent and one that had not been foreshadowed in any way" (Pl. Aff. [Dkt. 29] at ¶ 8). Whether this is fact or argument, this point is not correct.

At least as far back as Aurora Loan Servs., LLC v Weisblum (85 AD3d 95, 923 NYS2d 609 [2d Dept 2011][FN1] ) the Second Department has held that when section 1304 compliance is made an issue, plaintiffs must prove strict compliance with RPAPL section 1304. Indeed, plaintiff acknowledges that Weisblum provided the rule of decision by citing, in its affirmation, the trial level opinion in Montagnese (Pl. Aff. [Dkt. 29] at ¶ 20). Since before Kessler, other courts have recognized "[t]he overwhelming majority of New York Courts have held that the failure to comply with RPAPL 1304 permits—if not requires—dismissal of the action" (Matter of Gill, 529 BR 31 [Bankr. WDNY 2015] [internal quotation marks and citations omitted]; see, e.g., Wells Fargo Bank, N.A. v Burke, 125 AD3d 765, 5 NYS3d 107 [2d Dept 2015] [citing "strict compliance" standard]; Emigrant Mtge. Corp., Inc. v Persad, 117 AD3d 676, 985 NYS2d 608 [2d Dept 2014] [finding that plaintiff met the "strict compliance" standard regarding the RPAPL section 1304 notice it sent]; Hudson City Sav. Bank v DePasquale, 113 AD3d 595, 977 NYS2d 895 [2d Dept 2014] [setting forth the "strict compliance" standard and denying plaintiff summary judgment for factual inaccuracies in the 1304 notice, and granting defendant a dismissal on the same basis]). Gill predates Kessler by at least half a decade. Kessler is not a new rule, and surely cannot fairly be characterized as world-shifting or unanticipated.

Kessler itself provides compelling evidence that it sets forth no new rule. Kessler describes the case as requiring "the Court to determine how exacting the requirement of strict compliance is with respect to the 'separate envelope' requirement of RPAPL 1304 (2)" (Kessler, 202 AD3dd at 11, 160 NYS3d at 278). The language is not "whether to apply strict compliance," or anything like that. The Kessler court decided whether the strict compliance standard permitted engaging in a case-by-case analysis to determine whether the additional material was, in fact, benign or even helpful to debtors. Kessler invented no new standard.

Kessler described the state of the law as:

This Court, in USBank N.A. v Haliotis (185 AD3d at 758-759) as well as our sister court, the Appellate Division, Third Department, in Tuthill Fin., a Ltd. Partnership v Candlin (129 AD3d 1375, 13 NYS3d 399) have already implemented the strict compliance approach with the separate envelope requirement

(Kessler, 202 AD3d at 16, 160 NYS3d at 281-282 [emphasis to the word "already" added]). Already means that the proposition exists and is being repeated. In Candlin, the Third Department applied the strict compliance standard. "The record also does not clearly establish that the notice was, as required by statute, sent in 'a separate envelope from any other mailing or notice'" (Candlin, 129 AD3d at 1376, 13 NYS3d at 601). Candlin in 2015 established the strict compliance rule for the separate envelope requirement. To the extent that the Court of Appeals or the Second Department did not have a contrary rule, Candlin controlled in the Second Department (Mountain View Coach Lines v Storms, 102 AD2d 663, 476 NYS2d 918 [2d Dept 1984]).

Plaintiff speculates about the internal workings of the Appellate Division justices' minds when plaintiff sets forth as fact or argument, "Perhaps in acknowledgment of the monumental impact of this decision, and perhaps in consideration of the scathing dissent penned by Justice Miller, the Second Department majority (on motion from the Kessler plaintiff) agreed to send the matter up to the Court of Appeals for review and determination" (Id.). All that is correct here is that the Appellate Division granted leave to appeal to the Court of Appeals.

The order that granted leave to appeal in Kessler says nothing about monumental impact and surely does not give any indication of the panel's characterization of Justice Miller dissent. Kessler relied on Freedom Mtge. Corp. v Engel, 37 NY3d 1, 146 NYS3d 542 (2021) where the Court of Appeals urged the lower courts to recognize that the use of bright line rules aids parties to a mortgage foreclosure action adopt informed bargaining and litigation positions. Plaintiff correctly argues that Engel does not require "that every foreclosure issue must be resolved through a bright-line rule" (Pl. Aff. [Dkt. 29] at ¶ 24). However, Engel had rejected the Second Department's case-by-case analysis of revocation of acceleration rules in favor of a bright line rule that the voluntary discontinuance of a mortgage foreclosure action (within the statute of limitations) automatically revokes acceleration of the entire debt and restores the loan to its pre-action, installment status. Thus, while plaintiff is right that Engel does not require bright line rules all the time, the substantive reasoning behind Engel presents a clear rationale to adopt those bright line rules when possible in foreclosure cases. The Kessler court made that precise point. Taking the Engel interplay into account, plaintiff's conditional speculation about why the Second Department granted leave has no weight in the analysis of whether to grant a stay.

Plaintiff criticizes the Kessler court for overlooking CIT Bank, N.A. v Schiffman (36 NY3d 550, 145 NYS3d 1 [2021]). Plaintiff correctly argues that Schiffman which Kessler did not cite involves section 1304 while, in contrast, Engel, supra, does not. However, two flaws exist in plaintiff's Schiffman analysis. First, Schiffman set forth, "[t]he particular issue before us here is what showing a borrower must make to rebut the presumption created through proof of a standard office mailing procedure in the context of RPAPL 1304 notices" (Schiffman, 36 NY3d at 556, 145 NYS3d at 5-6 [italics in original]). Thus, Schiffman does demand strict compliance with the statute, as does Kessler. The Schiffman comparison is between the mailer's actual process and the process as described in the affidavits submitted to support a motion for summary [*3]judgment, unlike Kessler where the comparison is between the notice itself and the statute.

Second, the 1304 notice must be mailed. There are no exceptions to the mailing requirement. Where Schiffman permits difference is from the internal standard mailing process as actually in place and as described in an affidavit to prove mailing that relies not on personal knowledge of mailing but, instead, on the standard process. Schiffman stands for the proposition that in 1304 cases, plaintiffs must prove strict compliance with the first class mailing and certified mailing requirements in section 1304. Schiffman is an evidence case, not a 1304 case. Plaintiff's argument suggests that Schiffman permits mild deviation from the first class and certified mailing requirement set forth in the statute. Schiffman says no such thing. In this motion where plaintiff makes sweeping generalized statements of fact through counsel[FN2] , plaintiff presents no case where a court held that in-hand personal delivery of the 1304 notice (CPLR 308 [1]) or overnight courier was a minor deviation from 1304's statutory language that requires mailing by both first class mail and certified mail (see, Nizen v Jacobellis, 203 AD3d 719, 160 NYS3d 621 [2d Dept 2022] [service rules established in statutes must be followed]).

The bulk of plaintiff's reliance on Bank of NY Mellon v Luria (2022 NY Slip Op 50384[U] [Supreme Ct Putnam County]) is that the Luria court's set forth that Kessler should not be and would not be applied retroactively (see, People v Favor, 82 NY2d 254, 604 NYS2d 494 [1993] [setting forth the analytical framework for whether a case should be applied retroactively]). Whether the Luria court reached the right conclusion upon applying three-factor retroactivity analysis that Favor directs is outside the scope of this order because Favor and retroactivity do not apply unless a new rule has arisen. As set forth above, Kessler does not create a new rule.

Plaintiff also relies on CIT Bank, N.A. v Neris (2022 US Dist. LEXIS 99040 [SDNY]) where the District Court held that because the Fair Debt Collection Practices Act (15 USC § 1692 et seq.) (hereafter, FDCPA) so-called mini-Miranda requirement arises under federal law, the Court of Appeals will reject Kessler, at least insofar as Kessler relates to the FDCPA requirement. Neris points out, accurately so, that Kessler does not address how a noteholder might comply with both FDCPA and state law requirements of strict compliance. In this regard, though, Neris assumes that the 1304 notice is, in fact, a communication from a debt collector subject to the FDCPA requirements. That conclusion may be incorrect.

Kessler involves not only FDCPA mini-Miranda language but also other language not found in the statutory notice including safe harbor bankruptcy language.

Kessler's rejection of bankruptcy safe harbor language cannot withstand a supremacy clause analysis (Matter of Gill, supra). To avoid a violation of the discharge injunction in bankruptcy, the foreclosing creditor may proceed only against the realty by, among other things, waiving a deficiency (Deutsche Bank Trust Co. Ams. v Vitellas, 131 AD3d 52, 13 NYS3d 163 [2d Dept 2015]; see, Johnson v Home State Bank, 501 US 78 [1991]; Oakdale III v Deutsche [*4]Bank Natl. Trust Co., 189 AD3d 1685, 138 NYS3d 139 [2d Dept 2020]). How the creditor manages the timing and content of post-discharge notices—and whether the creditor determines that a 1304 notice is required in an in rem action are beyond the issues before this Court, except to the extent that this Court observes that the trial court opinion in Kessler contains thought-provoking language about timing (Bank of Am., N.A. v Kessler, 2017 NY Slip Op 33343 [U] [Sup Ct Westchester County 2017] [Scheinkman, JSC]).

The bankruptcy language which plaintiff chose to include in its RPAPL section 1304 notice is not required by any law. While that language may create a safe harbor for creditors, that language is not required by law. The safe harbor language bears only on the creditor's intent, which is irrelevant in civil contempt of the discharge injunction (Taggart v Lorenzen, — US —, 139 S Ct 1795 [2019]). The civil contempt issue is whether the creditor's behavior is "based on an objectively unreasonable understanding of the discharge order" (Id. at 1802). To have any understanding of the discharge order, the creditor must know of the order. "[A] contempt order [under 11 USC § 105 (a)] is warranted only where the party has notice of the order" (PHH Mtge. Corp. v Sensenich [Matter of Gravel], 6 F4th 503, 512 [2d Cir 2021] ). Thus, creditors may protect against discharge injunctions by running searches for bankruptcy filings before acting.

Case law about automatic stay violations undercuts any argument that the bankruptcy language is required to avoid having remedies imposed against the foreclosing party for violating the automatic stay. First, a creditor that knows of the automatic stay and that sends a 1304 notice has violated the stay, no matter what Kessler holds. Second, a creditor unaware of the automatic stay cannot be in willful violation of the automatic stay (11 USC § 362 [k]; Matter of Crysen/Montenay Energy Co., 902 F2d 1098, 1105 [2d Cir 1990] ["(A)ny deliberate act taken in violation of a stay, which the violator knows to be in existence, justifies an award of actual damages"]). Similarly, based on Sensenich, supra, the creditor without knowledge is not in non-willful violation (i.e., civil contempt) again, no matter what Kessler holds. In other words, it is the knowledge (or lack thereof) of the automatic stay the drives whether the creditor has violated the automatic stay, either willfully or just as a matter of civil contempt. The bankruptcy language does not change the creditor's knowledge.

In U.S. Bank, N.A. v Drakakis (205 AD3d 756, 757, 165 NYS3d 745, 746 [2d Dept 2022]) the only issue was a "Consumer Notice Pursuant to 15 USC Section 1692 (G)." Drakakis reversed the trial court, vacated summary judgment in favor of the plaintiff and granted defendant summary judgment based on the 1304 violation. The Drakakis court, like the Kessler court, did not discuss the supremacy clause or the statutory pre-emption (15 USC § 1692n) issues which underlie the FDCPA argument.

Mortgage foreclosures fall within the FDCPA's definition of debt collection (Cohen v Rosicki, Rosicki & Assocs., P.C., 897 F3d 75 [2d Cir 2018]). The FDCPA requires the so-called mini-Miranda warning[FN3] only in the initial communication with the debtor. As to subsequent communications, "failure to disclose that the communication is from a debt [*5]collector" is forbidden (15 USC § 1692e [11]). Thus, Kessler's point about staging the sequence of communication has incredible force—in plain words, if a 1304 notice is a communication as defined in the FDCPA, then do not use the 1304 notice as the initial communication. Of course, that leaves the question of how a debt collector complies in the subsequent communication (i.e., the 1304 notice) that the debt collection not fail to disclose that the communication is from a debt collector. The answer may be that a 1304 notice is not subject to the disclosure requirement.

"Congress identified abusive collection attempts as primary motivations for the [Fair Debt Collection Practices] Act's passage. [T]he Act's remedial purpose [is] halting abusive collection practices and giving debtors adequate information about their rights and obligations" (Hart v FCI Lender Servs., 797 F3d 219, 226 [2d Cir 2015]). In U.S. Bank, N.A. v Sackaris (74 Misc 3d 923, 164 NYS3d 794 [Supreme Ct Suffolk County 2022]) the Court held that the RPAPL 1304 notice was a pleading and relied on a bankruptcy court opinion from the Middle District in Florida which held that proofs of claims in bankruptcy proceedings were pleadings not subject to FDCPA disclosure requirements.

The failure to disclose in the initial written communication with the consumer and, in addition, if the initial communication with the consumer is oral, in that initial oral communication, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and the failure to disclose in subsequent communications that the communication is from a debt collector, except that this paragraph shall not apply to a formal pleading made in connection with a legal action. (15 USC § 1692e [11]).

In Cohen, supra, the Second Circuit held that for FDCPA purposes, the definition of pleading in the CPLR and federal rules of civil procedure is immaterial to the definition of pleading in FDCPA 1692e (11). There, among the documents that the Second Circuit deemed to be pleadings were the certificate of merit (CPLR 3012-b [a]) and the request for judicial intervention (22 NYCRR 202.12-A). Cohen's bright line rule is, "We conclude that Carlin's[FN4] reasoning applies not only to documents attached to an initial pleading but also to those documents that state law mandates a plaintiff to file shortly thereafter, and in relation to that pleading, to complete the initiation of the case" (Cohen 897 F.3d 75 at 88 [footnote added]).

Carlin held that attachments to a complaint fall within the statutory exception of a pleading. Carlin rejected an argument that the foreclosing party's lawyer's letter communication directly with the debtor during the foreclosure action's pendency was "not sent in connection with the foreclosure proceeding . . . [The debt collector] is thus incorrect that [debtor] was amply protected by the procedures of the court system" (Carlin, 852 F3d at 215 [2d Cir 2017]).

The 1304 notice differs from Cohen because unlike the certificate of merit and the RJI, the 1304 notice is not a statutorily or regulatorily required filing contemporaneously with the complaint and is sent at least 90 days before the action is commenced. The 1304 notice differs from Carlin because it is not an informal letter, but, instead, is a statutorily required notice where the exact language of the notice is set forth by law, in contrast to a notice requirement which sets forth, "A shall notify B of the amount due, the number of days overdue, and a contact [*6]telephone number for B to obtain more information."

"For purposes of this section, a State law is not inconsistent with this title [15 USCS §§ 1692 et seq.] if the protection such [state] law affords any consumer is greater than the protection provided by this title [15 USCS §§ 1692 et seq.]" (15 USCS § 1692n). Carlin's reference to "protected by the procedures of the court system" ties to the quoted carve out from FDCPA's preemption of all inconsistent state laws.

The 1304 notice and strict compliance with its content requirements is what may make the 1304 notice provide greater protection than federal law alone. Moreover, Cohen proved that Carlin was not the last word on the definition of pleading in the exception to the disclosure requirement; the 1304 issue has not reached the Second Circuit, but on this analysis, it appears that the Second Circuit could find it to be (A) a pleading because of the state law requirement that the 1304 notice be sent and the strict compliance standard regarding content, as enforced through, among other things, the separate envelope requirement as interpreted by Kessler and (B) a greater protection under state law than FDCPA provides. Thus, sending a 1304 notice as required by the statute and complying strictly with the 1304 requirements does not violate FDCPA.

Finally, "we hold that if a subsequent communication is sufficient to disclose to the least sophisticated debtor that the communication was from a debt collector, the is not violation of § 1692e [11] even if the debt collector did not expressly state, "this communication is from a debt collector" (Davis v Hollins Law, 832 F3d 962, 963 [9th Cir 2016]). Thus, even if the1304 pleading is not a notice, the lack of an additional notice designed to comply with FDCPA does not violate FDCPA so long as the least sophisticated consumer would understand the communication to be from a debt collector. The debtor's interpretation of a collection notice cannot be bizarre or unreasonable" (Id. at 964 [internal quotations and citations omitted]). Thus, to succeed on an argument that a 1304 notice without additional disclosures violates FDCPA (in effect, plaintiff's position here, as it is the Kessler plaintiff's position) a litigant would need to argue that the New York Legislature enacted a statute that would leave reasonable, non-bizarre doubt in the financially distressed homeowner's mind about the letter's source. That seems an unlikely goal of the Legislature, given the "legislative goal of providing information about additional protections and foreclosure prevention opportunities to homeowners at risk of losing their homes (see Senate Introducer's Mem in Support, Bill Jacket, L 2008, ch 472 at 7), as nothing in RPAPL 1304 prohibits a lender from mailing, in other envelopes, notices to a borrower—whether such notices be federally mandated or consist of any other notice or information that may assist a homeowner to avoid foreclosure (Kessler 202 AD3d at 18-19, 160 NYS3d at 283-384).

Plaintiff's motion here seeks a stay, an application addressed to the sound discretion of this Court. Plaintiff urges this Court to conserve judicial resources by not allowing any progress in this action because the Court of Appeals is going to reverse Kessler. Based on the foregoing analysis, this Court lacks plaintiff certainty about the result once the Court of Appeals addresses Kessler.

Other factors influencing this Court's discretionary determination to deny the stay are that plaintiff did not offer to toll interest, and CPLR 205 (a) appears to furnish plaintiff a foolproof solution to its Kessler challenge.

Dated: August 30, 2022
Riverhead, New York
E N T E R
Hon. Paul M. Hensley, AJSC Footnotes

Footnote 1: The portion of Weisblum that Citibank, N.A. v Conti-Scheurer (172 AD3d 17, 98 NYS3d 273 [2d Dept 2019]) abrogated does not apply here.

Footnote 2: This Court engages in the analysis it does to recognize the degree of scholarship and care with which plaintiff's counsel approached this delicate situation—plaintiff's counsel has to, in effect, admit without admitting, that the 1304 notice is defective; otherwise, Kessler has no impact, and waiting for the Court of Appeals is meaningless.

Footnote 3: "This is an attempt to collect a debt. Any information obtained will be used for that purpose" (15 USC § 1692e [11])

Footnote 4: Carlin v Davidson Fink LLP (852 F3d 207 [2d Cir 2017])