|Frawley v Dawson|
|2011 NY Slip Op 51203(U) [32 Misc 3d 1207(A)]|
|Decided on May 20, 2011|
|Supreme Court, Nassau County|
|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|This opinion is uncorrected and will not be published in the printed Official Reports.|
Dorothy Frawley and MICHAEL FRAWLEY, Plaintiffs,
Peter J. Dawson, LISA DAWSON, BMG ADVISORY SERVICES, LTD., BRASH MANAGEMENT GROUP, INC., ETHAN THOMAS CO. INC., TAXX PLUS SERVICES LTD., BRUCE BAKER, GRANITE SECURITIES LLC, GREENPOINT MORTGAGE FUNDING, INC., DISCOUNT FUNDING ASSOCIATES, CULLEN and DYKMAN, LLP, GMAC MORTGAGE CORPORATION as an assignee of HOMECOMINGS FINANCIAL NETWORK INC, HOMECOMINGS FINANCIAL NETWORK INC., OASIS MORTGAGE INC., FIRST NATIONAL BANK OF LONG ISLAND, ALFRED ARENA, NATIONWIDE LIFE INSURANCE COMPANY and ABC CORP "1 through 10", Defendants.
The following papers having been read on the motion (numbered 1-16):
Motion Seq. No. 002
Notice of Motion.............................................................1
Memorandum of Law....................................................2
Motion Seq. No. 004
Notice of Cross Motion...................................................5
Memorandum of Law....................................................6
Affirmation in Opposition.............................................7
Reply Affirmation...........................................................8 [*2]
Motion Seq. No. 005
Notice of Motion..............................................................9
Memorandum of Law....................................................10
Affirmation in Opposition.............................................11
Motion Seq. No. 006
Notice of Motion..............................................................12
Affirmation in Opposition..............................................13
Memorandum of Law.....................................................14
Memorandum of Law.....................................................16
Motion pursuant to CPLR 3211[a],  by the defendants First National Bank of Long Island and Albert Arena for an order dismissing the complaint insofar as interposed against them.
Motion pursuant to CPLR 3211 by the defendant Discount Funding Associates for an order dismissing the complaint insofar as interposed against it.
Cross Motion pursuant to CPLR 3212 by the defendant GreenPoint Mortgage Funding, Inc. for summary judgment dismissing the complaint insofar as interposed against it.
Joint motion pursuant to CPLR 3211[a],  by the defendant Homecomings Financial Network, Inc. and GMAC Mortgage Corporation, for an order dismissing the complaint insofar as interposed against them, converted to CPLR 3212, as further described in Hennessy, et., al., v Dawson, et., al.
As more fully detailed in the related action, Hennessy v Dawson, et. al [decided herewith], the motions presently before the Court arise out of thefts committed by codefendant Peter J. Dawson, a former investment advisor and/or financial planner who was arrested in December of 2006 and later pleaded guilty to stealing over $7 million which his clients had entrusted to him.
To the extent relevant here, between January of 2004 and September of 2006, the plaintiffs Michael Frawley, and his mother, Dorothy Frawley, aged 77 in September, 2006, applied for and obtained three separate loans at Peter Dawson's behest from codefendants First National Bank of Long Island ["First National"]; Greenpoint Mortgage Funding, Inc., ["Greenpoint"]; and Homecomings Financial Network, Inc/GMAC Mortgage Corporation [collectively "Homecomings"](Schupbach Aff., Exh., "F").
Thereafter, and also at Dawson's direction, the Frawleys turned over the net proceeds of all three loans to him — some $650,000.00 in total. The funds were collected by Dawson at the loan closings and deposited into accounts maintained by Dawson-[*3]controlled entities in accord with the investment plan he had devised. After Dawson's arrest in late 2006, the plaintiffs discovered that Dawson had misappropriated the entire investment corpus they had entrusted to him — after which they commenced the within action in 2007.
In sum, and as detailed more fully in the related Hennessy matter, Dawson's strategy and investment modus operandi was to generate funding by counseling clients, including the Frawleys, to liquidate life insurance policies and annuities, and/or to apply for "cash out" home equity loans — which the plaintiffs contend they did not need, were not qualified to receive, and could not afford to repay. In either case, after the proceeds had been generated, Dawson advised his clients to turn over the proceeds to him for investment — a directive with which they complied.
At the loan closings, which Dawson attended, lenders often disbursed loan funds by check made payable to Dawson's clients, who would then, at his direction, endorse those checks over to certain Dawson-owned, corporate entities, i.e., to "disbursement" and/or other accounts maintained at defendant First National Bank of Long Island ["First National"] by codefendants BMG Advisory Services, LTD ["BMG"], Ethan Thomas Co., Inc., ["Ethan"] and/or Brash Management Group, LTD ["Brash"]. In other cases, loan funds were wired directly to the same Dawson-entity accounts. The plaintiffs contend that Dawson's clientele was comprised of relatively unsophisticated investors possessing comparatively limited financial wealth — a number of whom were apparently older individuals or retirees.
The plaintiffs contend that Dawson not only collected and invested his clients' funds, he also assumed — admittedly with their consent — an unusual sort of de facto control over their finances, to the extent that he opened individual bank accounts for many clients at codefendant First National and actually made his clients' mortgage payments himself from those accounts (Plea, ¶¶ 104-107; Dawson [March 2008] Dep., 57, 83-84, 123-125).
The loans extended to Dawson's clients were made and brokered by various lenders and mortgage brokers including, insofar as relevant here, brokers Oasis Mortgage Corporation ["Oasis"], and Discount Funding Associates ["Discount"], as well as Greenpoint Mortgage Funding, Inc., ["Greenpoint"]; Homecomings Financial Network, Inc/GMAC Mortgage Corporation [collectively "Homecomings"], and First National.
The plaintiffs allege that mortgage broker Custom Capital, in particular, had a "referral relationship" with Dawson through its employee, Michael Laucella, a long-time Dawson acquaintance who had been incarcerated for state and federal securities and financial violations prior to his association with Custom Capital (Laucella Dep.,17-43-44; Dawson [March 2008] Dep., 183-187). In describing Laucella's method of brokering loans, Dawson claimed that Laucella was primarily interested in generating profits; that his general practice was to press for the maximum loan amounts he could obtain; that Laucella originated loans without proper inquiry into whether the loans were financially [*4]suited to the borrowers' financial circumstances; and that in certain instances, Laucella falsified and/or exaggerated (supposedly without Dawson's knowledge) client income and/or asset statements on loan applications (Dawson [March 2008] Dep., 193; 197-198; 200-202, 226)(see, furtherdiscussion in Hennessay v Dawson, et., al.)
Specifically, and with respect to the three Frawley loans, the record establishes that in January of 2004, Dorothy Frawley, obtained a $50,000.00 (non-mortgage), five-year loan, made in January of 2004 by defendant First National, with monthly principal payments of $834.00, payable at a "fluctuating rate" equal to one percentage point above the "prime commercial lending rate" (Cmplt., ¶¶ 32-33). The foregoing advance was collateralized and secured on the pledge of an annuity account owned by Dorothy Frawley and valued at $84,990.00 (Cmplt., ¶ 32). Upon Frawley's receipt of the loan proceeds, she wrote a personal check in the loan amount payable to BMG, drawn on a First National account which had been opened for her contemporaneously with the loan transaction.
Thereafter, in June of 2006, Dawson — through mortgage broker Oasis — arranged another Frawley loan/investment transaction, pursuant to which defendant Homecomings, made a "cash out," Fannie-Mae/Freddie-Mac loan to Dorothy and Michael Frawley in the principal sum of $282,000.00. The loan was secured by a 30-year, fixed rate (6.75%), conventional mortgage and secured by a mortgage encumbering Dorothy Frawley's personal, Merrick, New York residence (Cmplt., ¶¶ 31[A], 32; Aurand Aff., ¶¶ 2-5, Exhs., "A"-"C").
A review of Dorothy Frawley's signed "full doc" loan application form reveals a pre-loan, monthly pension/retirement income of $1500.00 for Dorothy Frawley; an appraised home value of $470,000.00; and liquid real estate assets valued at $475,000 (Aurand Exhs "A", "C"). At the time, Dorothy Frawley also owned a Merrick, New York commercial/residential rental property. Michael Frawley's separately executed loan application lists no employment income, no savings and debts and liabilities of approximately $27,885.00, for credit card debts and an outstanding car loan of some $18,600.00 (Aurand Aff., Exh., "E"). Moreover, Frawley contends that he was unemployed in June of 2006 — having previously retired on disability from his former position as a UPS driver. The attached loan materials, however, contain a Greenpoint "verbal verification form" containing handwritten entries stating that a Greenpoint employee had confirmed via the internet that Michael Frawley was then employed by Dawson's BMG entity as an "Account Executive" (Aurand Exh., "B"). According to Dawson, the information relative to Michael Frawley's alleged employment at Dawson's BMG entity was false and fraudulently supplied against his (Dawson's) wishes and without his knowledge by Laucella (Dawson [March 2008] Dep., 183-187; 201-202).
The HUD-1 closing statement signed by the Frawleys and prepared in conjunction with the Homecomings loan reveals that a 2%, $5,640.00 broker origination fee was disbursed to Oasis, and that upon deducting additional fees and expenses, a net loan disbursement or transfer of $267,345.29 was made directly to BMG (Aurand Aff., ¶¶ 2-5, [*5]Exh., "E," HUD-1 at 2). The complaint alleges that the mortgage was assigned at the closing to codefendant GMAC (Cmplt., ¶ 31[A]).
In September of 2006, only a few month after the Homecomings loan transaction was complete, the Frawleys — or ultimately, Michael Frawley — obtained a $367,000.00, "no income verification" commercial loan, with a ten-year "balloon" payment. The loan, which was brokered by Discount — and made by Greenpoint: (i) carried a fixed rate of 7.875%; and (ii) was secured by a mortgage encumbering certain Merrick, New York mixed, commercial/residential rental property then owned by Dorothy Frawley (M. Frawley [Sept. 2007] Aff., ¶¶ 10-11; Ukeiley Aff., ¶¶ 4-5; Exhs., "C"-"G"). The plaintiffs contend that the applications for the Homecomings loan and the earlier, June 2006 Greenpoint loan were submitted at approximately the same time and that the Homecomings loan had been originally requested in a far greater amount (i.e., $467,000.00)(Zamansky Aff., ¶¶ 22-24).
Significantly, and as part of the Greenpoint transaction, Dorothy Frawley agreed to contemporaneously transfer (for some $510,000.00) the subject commercial property to Michael, her son, and that a deed was allegedly "prepared by Dawson to effectuate" the transfer (Cmplt.,¶ 31[B]; Hrycak Aff., ¶¶ 4-8). Thereafter, the loan was closed and Michael Frawley executed a written transfer order, upon which the proceeds were wired by Cullen directly into an account maintained at First National by codefendant Ethan Thomas — a Dawson-owned entity (Cmplt., ¶¶ 8, 31[B]; Kelly Aff., ¶¶ 8-11; 18-21; Greenpoint Exh., "C"; Dawson [March 2008] Dep., 25-27).
Dawson testified that he maintained a close and long-term (since the early 1990's) banking relationship with First National — and, in particular, branch manager Alfred Arena. Arena allegedly assisted Dawson — sometimes on a daily basis — with his client and business accounts over the years. In sum, Dawson testified that Arena: (1) possessed an intimate knowledge of his banking activities; (2) knew that the client loans, including certain loans made by First National, were intended as income-generating, investment vehicles; and (3) was aware that Dawson was utilizing client funds on deposit at First National to pay his own expenses and those incurred by his corporate entities (Dawson [March 2008] Dep., 85-86; 140-141; 164-165; 178-182; Dawson [April 2008 1st Nat.] Dep., 103; 152-153; 165) (see facts detailed in Hennessy v Dawson, et., al].
By 2005 or 2006, Dawson had substantially dissipated the client assets he accumulated to such a degree that, as he described it, he and his entities began bouncing "millions of dollars" in checks drawn on his First National accounts — in response to which First National ultimately terminated its relationship with Dawson in mid 2006.
Prior thereto, and at some point in 2001, Dawson had began to systematically convert the client loan proceeds which had been entrusted to him. Specifically, instead of investing the client assets as he had promised, he removed those funds from his First National accounts and then used the converted assets for his personal and/or his own business operating expenses — misconduct which Dawson attributed, in part, to: (1) an [*6]increasingly serious Xanax addiction; (2) a bi-polar psychological disorder; and (3) the alleged neglect and laxity of the involved financial institutions, brokers and attorneys, who — according to Dawson — allowed the scheme to prosper by failing to intervene and/or supervise him properly or "realize how sick * * * [he] was" (Plea Aff., ¶¶ 34-35, 93-95; 144; Dawson Dep., 18, 22-30).
In December of 2006, Dawson's scheme unraveled and he was arrested in Nassau County, after which he agreed to plead guilty to grand larceny in the second degree (involving some 53 victims and covering thefts between January 2005 and December 2006). In exchange, Dawson received a sentence commitment from the Court of 5 to 15 years, together with restitution of approximately $7.7 million. Dawson also promised "full and complete cooperation in any civil actions" commenced by his victims as a result of his thefts (Plea Agreement, ¶¶ 2-3, 6).
Based on these facts and others, the Frawleys commenced the within action in 2007 against Dawson and the various mortgage brokers and lending institutions all of whom — the plaintiffs claim — aided and abetted Dawson's fraudulent conduct in perpetrating the investment scheme. The plaintiffs further contend, in substance, that the lender and broker defendants breached an independently existing tort duty of care by: (1) making grossly improvident and unreasonable loans, and (2) utilizing allegedly false and unverified or inaccurate and incomplete income data.
The complaint contains thirteen separately captioned causes of action, including claims grounded upon: negligence, fraud, breach of fiduciary duty, aiding and abetting fraud/fiduciary duty and, unjust enrichment. The thirteenth cause of action demands declaratory relief voiding the previously described mortgages/loans on the ground that all three are "oppressive, unconscionable or against * * * [the defendant lenders'] own mortgage loan criteria" (Cmplt.,¶¶ 91-95).
By order dated October 5, 2007, this Court consolidated the within action with a related action commenced by various other plaintiffs allegedly victimized by Dawson's scheme (see, Hennessy v Dawson, et., al [Index No. 019368-06 see also, Dawson v Miller, Index No. 13770-07];CPLR 602[a](Order of Winslow, J., dated October 10, 2007, at 1). The Court also authorized depositions of both Peter Dawson and Michael Laucella, which were conducted in late 2007 and 2008 and submitted to the Court for its consideration in conjunction with the pending motions (see, Order of Winslow, J., dated October 5, 2007).
In May of 2009, the Hennessy action was removed to the Federal District Court for the Eastern District of New York — although it was subsequently remanded back to this Court by order dated August 17, 2010 (Hennesey v. Dawson, et., al, ___F.Supp2d___, 2010 WL 3310713 [E.D.NY 2010]). Before the removal, various Miller, Frawley, Hennessy defendants had already noticed motions to dismiss the complaint. Those applications are again before the Court for review and resolution.
At bar, the defendants Discount, First National/Arena, Greenpoint, and [*7]Homecomings/GMAC have all moved to dismiss the complaint pursuant to either CPLR 3211[a] or CPLR 3212. Although the motions were, for the most part, largely noticed as applications pursuant to CPLR 3211, the parties have since consented to the Court's considering them as summary judgment applications made pursuant to CPLR 3212, (see history in Hennesey v. Dawson, et., al). Complicating the resolution of the motions, is the fact that the parties' submissions — many of which are now several years old — are framed as motions addressed to the pleadings which, for the most part, have not been supplemented with revised analysis to reflect the motions' altered procedural status as summary judgment applications.
In any event, and with respect to those motions, Greenpoint has established its prima face entitlement to judgment dismissing the two causes of action interposed against it; namely, the twelfth (negligence) and thirteenth (unconscionability) causes of action. The twelfth cause of action is predicated solely on the theory that: (1) Cullen was Greenpoint's settlement agent at the closing; and (2) that Cullen negligently wire-transferred the loan proceeds to Ethan Thomas without the Frawleys' express authorization — and in violation of the Frawleys' alleged understanding that the funds would be transferred only to a dedicated account maintained in Dorothy Frawley's name (Cmplt., ¶¶ 30-31).
The record establishes, however, that Cullen wired the funds only after Michael Frawley executed a check requisition form expressly authorizing a wire funds transfer of the net loan proceeds (Ukeiley Aff., Exh., "G" see also, M. Frawley Aff., ¶¶ 15-17; Cmplt., ¶ 30). Although the executed wire transfer form does not specifically refer to "Ethan Thomas" as a specified recipient, it is undisputed that Cullen's wiring of the funds could only have been based upon the receipt of a disbursement directive issued by Dawson — who represented the Frawleys in conjunction with their investments for years and who attended the subject closing as their financial advisor in connection with the subject transaction.
Significantly, there is no material dispute — as Dawson himself repeatedly confirmed — that his clients entered into the loan transactions from the outset with the prior knowledge and expectation that the loan proceeds would be entrusted to him in some fashion for investment (e.g., Dawson [April 2, 2008 1st Nat] Dep., 99-100 [March 2008] Dep., 91, 95). The Frawleys themselves made and/or approved similar direct transfers to Dawson entities as part of the January, 2004 (First National) and the June, 2006 (Homecomings) loan/investment transactions — the latter transaction having closed only a few months earlier, as evidenced by a signed HUD-1 statement by which the Frawleys themselves authorized the involved funds transfer. Assuming, as the plaintiffs contend, that the defendants knew the loans were investment vehicles, this contention, if anything, further buttresses Greenpoint's assertions,since the conclusion to be drawn by those possessing this knowledge was that Dawson — who was present with the plaintiffs' assent — was in attendance as both a trusted advisor and the architect of the investment [*8]strategy for which the loans were being made.
In any event, a bank generally has no "duty to monitor funds held in trust by a fiduciary so as to safeguard them from misappropriation" — even with respect funds held in accounts "maintained at * * * its own branches (Diamore Realty Corp. v. Stern, 50 AD3d 621, 622 see, Matter of Knox, 64 NY2d 434, 438 ; Bradford Trust Co. v. Citibank, N.A., 60 NY2d 868, 870 ; Bischoff v. Yorkville Bank, 218 N.Y.106, 111-112 . Further, upon the facts presented here,"a bank is generally entitled to assume that a person acting as a fiduciary will apply entrusted funds to the proper purposes and will adhere to the conditions of the appointment" (Matter of Knox, supra, 64 NY2d at 438; Diamore Realty Corp. v. Stern, supra; Norwest Mortgage, Inc. v. Dime Sav. Bank of New York, 280 AD2d 653; Zaz-Huff Inc. v. Chase Manhattan Bank, N.A., 277 AD2d 59, 60-61.
Similarly, Cullen's disbursement at the closing is not evidence that Greenpoint was complicit in, or aided and abetted, Dawson's subsequently occurring, thefts; nor does the complaint accuse Greenpoint or Cullen of fraud, breach of fiduciary duty — or any culpable knowledge of Dawson's criminal scheme. Lastly, the complaint does not allege that Greenpoint is answerable to the plaintiffs based on a theory of imputed liability flowing from any agency relationship arising out of the loan transaction.
All movants have demonstrated their prima facie entitlement to dismissal of the thirteenth cause of action, which generally demands declaratory relief voiding the loans as oppressive and unconscionable (Cmplt., ¶¶ 90-95).
"A determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made — i.e.,"some showing of an 'absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party'" (Gillman v. Chase Manhattan Bank, N.A., 73 NY2d 1, 10 , quoting from, Williams v Walker-Thomas Furniture Co., 350 F.2d 445, 449 [D.C. Cir. 1965].
Here, the evidence does not support the assertion that the actual loan terms and conditions were unduly oppressive as written; nor, in any event, is there any claim or proof that the movants employed overbearing or duress-inducing tactics which deprived the plaintiffs of meaningful choice with respect to the loans (Morris v. Snappy Car Rental, Inc., 84 NY2d 21, 29-30 ; Citidress II v. 207 Second Ave. Realty Corp., 21 AD3d 774. To the extent that is claimed, in effect, that the "decision to lend money to the mortgagor was unwise" this does not generate a factual issue with respect to "whether the * * * [lender] engaged in fraudulent or unconscionable conduct" (Argent Mortg. Co., LLC v. Mentesana, 79 AD3d 1079, 1081; Sutherland v. Remax 2000, ___Misc.3d___, 2008 WL 3307201 [Supreme Court, Nassau County 2010]).
With respect to the motion to dismiss by Discount, the entity which brokered the Greenpoint loan, Discount has similarly demonstrated its prima facie entitlement to judgment as a matter of law with respect to the fourth and fifth (aiding and abetting [*9]fraud/violation of fiduciary duty) and the ninth causes of action (unjust enrichment).
Significantly, Courts have declined to impose fiduciary obligations upon mortgage brokers (see, Iannuzzi v. American Mortg. Network, Inc., 727 F.Supp.2d 125, 139-140 [E.D.NY Jul 22, 2010]; Shovak v. Long Island Commercial Bank, 50 AD3d 1118, 1120; Lum v New Century Mtge. Corp., 19 AD3d 558, 559), and neither the parties' actual business relations nor the terms of their brokerage agreement, establishes that they created "their own relationship of higher trust" (Northeast General Corp. v. Wellington Advertising, Inc., 82 NY2d 158, 162 .
Michael Frawley has confirmed in his affidavit that he had no dealings of any import with Discount and that he relied exclusively upon Dawson, whom he claims, "handled the entire loan application process" (M. Frawley Aff., ¶¶ 4, 5-6; Gussin Aff., ¶¶ 10-17). The fact that the brokerage agreement refers to, loan counseling or advice relative to mortgage products as services available to a borrower, does not give rise to a fiduciary duty between the parties (cf., Marmelstein v. Kehillat New Hempstead, 11 NY3d 15, 21 ). Further, "that a defendant may have had superior knowledge of the particular type of * * * products involved does not, without more, create a fiduciary relationship" (RNK Capital LLC v. Natsource LLC, 76 AD3d 840, 841-842; Robert I. Gluck, M.D., LLC v. Kenneth M. Kamler, M.D., LLC, 74 AD3d 1167).
Nor has evidence been adduced from which it can be inferred that Discount's services were knowingly rendered in furtherance of Dawson's criminal scheme. The fact that Discount may have brokered a loan transaction, after which the plaintiffs' financial advisor later converted the proceeds, does not by itself create an inference that the services provided must therefore have been knowingly performed to assist and aid the Dawson thefts (see generally, In re Agape Litigation, supra; Decana Inc. v. Contogouris, supra, 55 AD3d 325, 326). Notably, "[w]hen scienter is lacking, the mere fact that a defendant's otherwise lawful activities may have assisted another in pursuit of guileful objectives is not a sufficient basis for a finding that he or she conspired to defraud (LeFebvre v. New York Life Ins. and Annuity Corp., 214 AD2d 911, 913).
However, upon favorably construing the sixth, negligence cause of action — and at least pending further discovery — the Court finds that the defendants have failed to establish that an independent tort duty did not arise out of the parties' relationships; specifically, a tort duty requiring the exercise of due care in, among other things, collecting, processing and adequately verifying loan information and/or underwriting criteria so as to avoid the making of loans sufficiently foreseeable to result in financial injury (see generally, AG Capital Funding Partners, L.P. v. State Street Bank and Trust Co., 11 NY3d 146, 159 ; Sommer v. Federal Signal Corp., 79 NY2d 540, 551-552  see moredetailed discussion in Hennessy v Dawson, et., al.,[decided herewith]).
Although the typical lending relationship is contractual in nature (Dobroshi v. Bank of America, N.A., 65 AD3d 882, 884), "borderland situations" may arise where "[a] legal duty independent of contractual obligations may be imposed by law as an incident to [*10]the parties' relationship" (Sommer v. Federal Signal Corp., supra, at 551), i.e., a "separate tort liability" attributable to "circumstances extraneous to, and not constituting elements of, the contract" although related or dependent in it (Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 NY2d 382, 389-390  see, AG Capital Funding Partners, L.P. v. State Street Bank and Trust Co., 11 NY3d 146, 159 ).
Here, in this "complex mortgage fraud case" (Hennesey v. Dawson, 2010 WL 3310713, at 1)[Seybert, J.]), the plaintiffs are not necessarily attempting to "transmogrify * * * [a] contract claim into one for tort" (Hargrave v. Oki Nursery, Inc., 636 F.2d 897, 899 [2nd Cir. 1980] cf., New York University v. Continental Ins. Co., supra, 87 NY2d at 316-318). Rather, they claim injury derived from "other kinds of harm" (Hargrave v. Oki Nursery, Inc., supra, at 899), i.e., a species of injury attributable to a failure to exercise due care arguably distinct from the obligations set forth in, or impliedly derived from, the parties' written agreements (e.g., AG Capital Funding Partners, L.P. v. State Street Bank and Trust Co., 11 NY3d at 159; Sommer v. Federal Signal Corp., supra; Camp Kennybrook Inc. v. Kuller, 214 AD2d 264; Sacher v. Beacon Associates Management Corp., ___Misc.3d___, 2010 WL 1881951 at 13 [Supreme Court, Nassau County 2010] cf., Emigrant Mortg. Co., Inc. v. Fitzpatrick, supra, 29 Misc 3d 746, 754; Williams v. Aries Financial, LLC, ___ F.Supp.2d ___, 2009 WL 3851675, at 11 [E.D.NY 2009]; Watkinson v. MortgageIT, Inc., ___ F.Supp2d ___, 2010 WL 2196083, at 8 [S. D. Cal. 2010]).
In sum, plaintiffs contend that upon the unusual facts presented here, it was foreseeable that, recommending, originating or underwriting loans for which the plaintiffs were not financially qualified, would generate concrete harm (Emigrant Mortg. Co., Inc. v. Fitzpatrick, supra, 29 Misc 3d 746, 754; Williams v. Aries Financial, LLC, supra; Watkinson v. MortgageIT, Inc., supra). Significantly, banks owe duties of care to their own customers (Dubai Islamic Bank v. Citibank, N.A., supra, 126 F.Supp.2d 659, 667 [S.D.NY 2000]). Although the movants assert that Dawson's thefts were the exclusive source of the plaintiffs' injuries, the fair import of the plaintiffs' negligence allegations — as amplified by their affidavits and opposing submissions — is that irrespective of Dawson's thefts, they have sustained a separately existing injury attributable to the allegedly improvident loans. In any event, the issue of proximate cause is one for the trier of fact "where varying inferences are possible" (Mirand v. City of New York, 84 NY2d 44, 51 ), A plaintiff "need not positively exclude every other possible cause of" an injury (Gayle v. City of New York, 92 NY2d 936, 937 ).
Whether the plaintiffs can ultimately succeed in establishing that the defendants' conduct breached a tort duty of care which proximately caused them compensable injury, is a question which cannot be answered upon the factual record as presently constituted (Dubai Islamic Bank v. Citibank, N.A., supra, at 667 see, AG Capital Funding Partners, L.P. v. State Street Bank and Trust Co., 11 NY3d at 159)(see, Hennessy v Dawson, et. al).
The ninth cause of action contains a brief, collective allegation that a series of five [*11]co-defendants (including Discount) were all unjustly enriched at the plaintiffs' expense and that the equities require them to return whatever funds they obtained to the plaintiffs (Cmplt.,¶¶ 71-74). However, the existence of the enforceable Discount fee contract — whose viability and existence both parties have affirmed on the motion — will foreclose the assertion of an unjust enrichment theory of recovery (see generally, Accurate Copy Service of America, Inc. v. Fisk Bldg. Associates L.L.C., 72 AD3d 456; Bouchard Transp. Co., Inc. v. New York Islanders Hockey Club, LP, 40 AD3d 897, 898 cf., Mandarin Trading Ltd. v. Wildenstein, ___NY3d___, 2011 WL 445634 ). The Court notes that the plaintiffs have advised, in their brief, that Discount was named as a party to the unjust enrichment claim largely because it was anticipated that Discount might argue that its fee contract was not binding (Pltffs' [Discount] Brief at 17). Accordingly, the fourth, five, and ninth causes should be dismissed insofar as interposed against Discount.
Homecomings/GMAC [collectively "Homecomings"] move to dismiss those causes of action asserted against them, i.e., namely, the fourth, fifth, sixth, ninth and thirteenth causes of action.The $282,000.00 "cash out" Homecomings refinance loan made to Dorothy Frawley, a conventional 30-year fixed loan secured by a mortgage on the Frawleys' residence, was brokered by non-movant Oasis Mortgage Corp ["Oasis"] and closed in June of 2006 at the offices of Peter Dawson. The relevant loan documents name both Michael and Dorothy Frawley as borrowers (Aurand Aff., ¶¶ 2-7; Exhs., "A"- "F").
For reasons set forth in connection with the Discount and Greenpoint motions (supra), those branches of the Homecomings' motion which are to dismiss the "aiding and abetting" fraud and fiduciary duty (fourth and fifth) causes of action should be granted. The Court agrees that the evidence fails to generate triable issues of fact with respect to: (1) Homecomings' culpable, or actual knowledge of Dawson's tortuous and criminal activities; and/or (2) its providing substantial assistance in support of Dawson's scheme by making loans for individuals who would not otherwise qualify for same" (Cmplt.,¶¶ 47[B]; 50-54)(see, Decana Inc. v. Contogouris, supra, 55 AD3d 325. Further, there is no fiduciary duty between the plaintiffs and Homecomings. An arm's length borrower-lender relationship is not of a confidential or fiduciary nature * * *" (River Glen Associates, Ltd. v. Merrill Lynch Credit Corp., 295 AD2d 274, 275).
Neither does the evidence support the theory that Oasis or non-party Michael Laucella were Homecomings' agents in connection with the subject loan transactions. The assertion that Oasis obtained information about the Frawleys from Dawson, even if true, does not establish that Oasis was Homecomings' agent (cf., Iannuzzi v. American Mortg. Network, Inc., 727 F.Supp.2d 125, 142, fn 21 [E.D.NY 2010] see, Dawson [March, 2008] Dep., 194). In any event, there are no allegations in the complaint which assert that Oasis was Homecomings' agent.
The Court has already addressed and dismissed the thirteenth cause of action sounding in unconscionability. Accordingly, the fourth, fifth and thirteenth causes of action are dismissed to the extent indicated above and insofar asserted against [*12]Homecomings. However, for reasons stated previously, that branch of Homecomings' motion which is to dismiss the negligence (sixth) cause of action should be denied pending further discovery.
Lastly, to the extent interposed against Homecomings, the unjust enrichment (ninth cause of action), is predicated on a claim that various undifferentiated defendants were collectively and unjustly enriched by retaining undescribed fees (Cmplt., ¶ 72) — although the plaintiffs now apparently assert that the enrichment will actually occur when and if the loan is upheld, since the plaintiffs will suffer injury and Homecomings will profit for the "next 29 years" (Pltffs' Brief at 15-16). The Court agrees that these circular claims do not set forth a viable theory sounding in unjust enrichment. "Conclusory allegations that fail to establish that a defendant was unjustly enriched at the expense of a plaintiff warrants dismissal" (Mandarin Trading Ltd. v. Wildenstein, supra, 2011 WL 445634).
Finally, First National and Alfred Arena also move to dismiss those claims which have been interposed against them, including the respondent superior (tenth) cause of action attributing Arena's alleged misconduct to First National.
The eleventh cause of action is plead against both Arena and First National and claims in key part, that First National breached its duty to plaintiffs as loan customers since First National violated unspecified Uniform Commercial Code and Banking law provisions by negligently procuring the $50,000.00, 2004 loan in Dorothy's name "without her knowledge [and] with forged signature[s] or endorsement[s]" — and also because the defendants "were otherwise negligent" (Cmplt.,¶¶ 32, 78-83).
The fourth (aiding and abetting fraud) cause of action similarly alleges that Arena aided Dawson's fraud solely by accepting and originating forged or fraudulent documents with respect to the January, 2004 $50,000.00 collateral loan (Cmplt., ¶ 47[C]), while the fifth cause of action alleges that Arena breached a fiduciary duty to the plaintiffs by continuing to provide services to Dawson when he should have known Dawson was perpetrating a fraud (Cmplt., ¶¶ 50-53).
First National and Arena have demonstrated their prima facie entitlement to judgment as a mater of law with respect to the specific fraud claim alleging that Arena accepted and originated forged and fraudulent loan documents and/or procured a loan without her knowledge (Cmplt.,¶¶ 47[C], 80; fourth and eleventh causes of action).
In support of its application, First National has submitted a series of signed, transactional documents — all ostensibly containing the same signature, i.e., "Dorothy Frawley" — which signature has been inscribed in a personal handwritten style which is virtually identical to the signature affixed to the "individual verification" form Dorothy Frawley has attached to her complaint. In opposing the motion, Dorothy Frawley has not submitted an affidavit specifically asserting that her signatures were forgeries or otherwise addressing the manner in which the loan transaction unfolded (cf. Clark v. Mortgage Services Unlimited, 78 AD3d 1104, 1105; Skilled Investors, Inc. v. Bank Julius Baer & Co., Inc.,62 AD3d 424, 425). [*13]
Instead, the plaintiffs rely primarily upon the affirmation of their attorney, who lacks personal knowledge of the events of the execution of the loan documents (e.g., Zuckerman v City of New York, 49 NY2d 557, 563 ). Although in his affirmation counsel theorizes, among other things, that Frawley's signatures may have been affixed to the signed documents under questionable circumstances involving alleged backdating, notary and/or witnessing irregularities, these claims do not support the assertion that Frawley's signatures were forgeries or that they were not voluntarily affixed to the subject documents (Glenn Aff., ¶¶ 12, 21-22; Brief at 2-4, 7). Similarly, the plaintiffs suggest that Dawson himself may have obtained Frawley's signatures — implying some sort of undescribed malfeasance — but they do not identify the specific acts of misconduct actually committed by Dawson in securing Frawley's signature (Glenn Aff.,¶¶ 20-22; Pltffs' Brief at 7-8 see, Dawson [March, 2008] Dep., 157).
In any event, and assuming without deciding, that Dawson did obtain Frawley's personal signatures, this alone would not establish that the signatures were invalid, involuntary, or otherwise demonstrate that Dawson was acting as First National's agent (cf., Iannuzzi v. American Mortg. Network, Inc., supra, 727 F.Supp.2d at 139)(Dawson [March 2008] Dep., 157). The Court lends no credence but notes that Dawson himself was insistent that he never committed (and would not tolerate) fraud or false statements in client application materials and/or other documents submitted to lending institutions (e.g., Dawson [March 2008] Dep., 226).
"[S]omething more than a bald assertion of forgery is required to create an issue of fact contesting the authenticity of a signature"(Banco Popular N. Am. v. Victory Taxi Mgt., 1 NY3d 381, 384 . Relatedly, the plaintiffs have failed to show that a fiduciary duty existed between them and Arena and/or First National Bank arising out of the parties' banking or lending relationship, thereby warranting dismissal of the claims interposed in the fifth (fiduciary duty) cause of action as against Arena (e.g., Dobroshi v. Bank of America, N.A., supra, 65 AD3d 882, 884; River Glen Associates, Ltd. v. Merrill Lynch Credit Corp., supra, 295 AD2d 274, 275).
The ninth cause sounding in unjust enrichment based upon the receipt of undescribed fees, should also be dismissed as conclusory and unsubstantiated — particularly where, as here, the plaintiffs and the lenders "entered into an express agreement[s]", i.e., the involved notes, loan agreements and/or mortgages.
The Court reaches a different result, however, with respect to those portions of the complaint founded upon negligence arising from First National's alleged knowledge of Dawson's misconduct (Cmplt., ¶¶ 57-58; 80).
As detailed previously, although there generally exists no "account monitoring" obligation or fiduciary duties owed by a bank to its customers (Diamore Realty Corp. v. Stern, supra, 50 AD3d 621 see, Matter of Knox, supra), nevertheless, there are circumstances where a bank "may still be held answerable for the loss of funds misappropriated from a fiduciary account * * *" (Home Sav. of America, FSB v. [*14]Amorous, supra, 233 AD2d at 39-40); namely, where "the bank, with knowledge of the fiduciary's diversion of trust funds, accepts such funds in payment of a personal obligation owed by the fiduciary to the bank * * * or the bank otherwise has actual knowledge or notice that a diversion is to occur or is ongoing" (Home Sav. of America, FSB v. Amorous, supra, 233 AD2d at 42).
"Facts sufficient to cause a reasonably prudent person to suspect that trust funds are being misappropriated will trigger a duty of inquiry on the part of a depositary bank * * * and a bank's failure to conduct a reasonable inquiry when the obligation to do so arises will result in the bank being charged with such knowledge as inquiry would have disclosed" (Home Sav. of America, FSB v. Amorous, supra see also, Matter of Knox, supra; Bischoff v. Yorkville Bank, supra, 218 NY at 113-114)."Such facts include a chronic insufficiency of funds, or payment of the fiduciary's personal obligations to the depositary bank from the escrow account" (Norwest Mortgage, Inc. v. Dime Sav. Bank of New York, supra, 280 AD2d at 654; Home Sav. of Am. v. Amorous, supra; Lerner v. Fleet Bank, N.A., supra, 459 F.3d at 290).
Here, there was extensive testimonial evidence provided by Dawson with respect to the long-term relationship which existed between his entities and First National. Specifically, and as detailed more fully in the related, Hennessy action, Dawson testified that, inter alia, Alfred Arena — First National's branch manager — possessed an intimate knowledge of Dawson's investment plan and was also aware that the loan proceeds were client-owned funds. There was additional testimony that Arena was involved in the management and oversight of Dawson's business and individual client accounts; that Arena participated in loan closings and facilitated the manner in which the loan proceeds were deposited at closings into the Dawson-entity disbursement accounts; and that he assisted in transferring disbursement funds into individual client accounts to pay mortgage debts owed to the bank (see, Hennessy v Dawson, et., al [decided herewith]). Further, Dawson testified that Arena was allegedly aware that he (Dawson), never acquired any investment products with the client funds he maintained in the client accounts and that Arena also knew that Dawson had "bounced" checks in significant quantities (Home Sav. of Am. v. Amorous, supra).
Viewing this evidence in a light most favorable to the plaintiff (Branham v. Loews Orpheum Cinemas, Inc., 8 NY3d 931, 932 ), the Court agrees that issues of fact exist as to: (1) the precise nature and scope of First National's knowledge of Dawson's malfeasance; and (2) whether inquiries made or actions undertaken in a timely fashion might have prevented Dawson from further dissipating the client disbursement accounts into which the Frawley's loan proceeds had been deposited (Grace v Corn Exch. Bank Trust Co., supra, 287 NY at 107; Home Sav. of America, FSB v. Amorous, supra, 233 AD2d at 42). The Court notes again, that discovery has been limited, with the various banks, most brokers and the plaintiffs, not having as yet submitted to depositions (Rodriguez v. DeStefano, 72 AD3d 926; Metichecchia v. Palmeri, 23 AD3d 894, 895). [*15]
Lastly, the parties have addressed — and hotly
debated — the applicability of certain statutory enactments which the plaintiffs claim
impose independently existing loan "suitability" duties and related obligations (e.g., 15
U.S. C. § 1639[h]; Banking Law, § 6-l cf., Banking Law § 6-m see,
Wells Fargo Bank v. Emmet, ___Misc 3d___, 2009 WL 3793455 [Supreme Court, Suffolk
County, 2009] see, Pltff's [Discount] Opp. Brief, at 14-16; Pltffs' Opp. [Homecomings]
Brief, 12-15). The complaint itself, however, makes no particular reference to any of the specific
statutory authorities relied upon — and the parties' submissions are generally lacking in
informational and detailed analytical content relative to their application (see discussion in
Hennessy v Dawson, et., al. [decided herewith]).
However, in the interests of justice and to clarify and sharpen the issues, the plaintiffs — if they be so inclined — may move for leave to serve an amended complaint containing a separately pleaded cause of action grounded upon those specific, statutory enactments which they contend are applicable to the various loans at issue here (see, Alvord and Swift v. Stewart M. Muller Const. Co., Inc., 46 NY2d 276, 281 ; Bennardi & Associates, Inc. v. Ramsons One, Inc., 8 AD3d 948, 949; Raymond Babtkis Associates, Inc. v. Tarazi Realty Corp., 34 AD2d 754). The Court makes this determination because this matter has required extensive initial discovery, which this Court oversaw, but was not intended nor was definitive of the parties' discovery needs and because of the necessity of removal of the claims to the United States District Court due to FDIC intervention. The plaintiffs' application, if any, shall be made, within 20 days of service after entry of this order.
The Court has considered the parties' remaining contentions and concludes that none warrants the granting of relief beyond that awarded above.
Accordingly it is,
ORDERED that the motion by the defendants First National Bank of Long Island and Albert Arena for an order dismissing the complaint, is granted with respect to the fourth, fifth and ninth causes of action, and that portion of the eleventh causes of action predicated upon the Arena's alleged acceptance and origination of false or fraudulent loan documents; and the motion is otherwise denied, and it is further,
ORDERED that the joint motion by the defendants and Homecomings Financial Network, Inc./GMAC Mortgage Corporation for an order dismissing the complaint insofar as interposed against them, is granted with respect to the fourth, fifth, ninth and thirteenth causes of action and the motion is otherwise denied, and it is further,
ORDERED that the motions by the defendants Discount Funding Associates for an order dismissing the complaint insofar as interposed against it is granted with respect to the fourth, fifth and ninth causes of action, and the motion is otherwise denied, and it is further,
ORDERED that the motion by the defendant Greenpoint Mortgage Funding, Inc. for an order dismissing the complaint insofar as interposed against it, is granted with [*16]respect to the twelfth and thirteenth causes of action and it is further,
DECLARED that the subject Greenpoint and Homecomings/GMAC loans are not subject to cancellation upon the grounds that they are unconscionable or otherwise unenforceable as alleged in the thirteenth cause of action.
All counsel or pro-se parties remaining after this and the other two, Hennessy and Miller decisions shall appear in the part for a compliance conference on June 28, 2011. Appearance must be by someone with knowledge and authority.
This constitutes the Order of the Court.
Dated: May 20, 2011L/S