PAMELA K. CHEN, District Judge.
Before the Court is Defendant Select Portfolio Servicing's ("SPS")
In February 1998, Plaintiff and his wife (collectively, "the Dolans") executed a promissory note in the amount of $224,000, payable to Premier Mortgage Corp. ("Premier") and secured by a mortgage on the Dolans' primary residence. (Def. 56.1
In August 2000, the Dolans entered into another forbearance agreement with TMS ("Second Forbearance Agreement"). (Def. 56.1 ¶ 7.) TMS sent Plaintiff a letter dated November 7, 2000, which Plaintiff believes he received, informing Plaintiff that the note and mortgage would be serviced by SPS beginning on November 22, 2000. (Def. 56.1 ¶¶ 9-10; Kramer Decl. Ex. O at 335:23-336:10; Pl. 56.1 ¶ 9.) TMS defined "servicing" Plaintiff's mortgage as "the right to collect payments" from the Dolans. (Dkt. 355 at 3 n.3; Kramer Decl. Ex. E.) Thus, while SPS was not a party to the Second Forbearance Agreement, SPS was, according to Plaintiff, a "party" with respect to the enforcement of that agreement as of November 2000. (Def. 56.1 ¶ 8; Pl. 56.1 ¶ 8.)
At some point after SPS began servicing the Dolans' note and mortgage, the Dolans defaulted under the terms of the Second Forbearance Agreement. (Def. 56.1 ¶ 12.)
The original terms of the mortgage provided that the lender's servicing agent was authorized to obtain hazard or property insurance coverage, with prior notice to be given to Plaintiff, if the Dolans defaulted on the loan or failed to maintain such insurance coverage on the residence. (Kramer Decl. Ex. B at ECF 5-6, 8.) Additionally, the Third Forbearance Agreement stated that Plaintiff needed to "provide proof of insurance coverage in form and substance satisfactory to [TMS] no later tha[n] September 30, 2002." (Kramer Decl. Ex. G ¶ 10.) According to Defendant, SPS informed Plaintiff, via correspondence dated May 4, 2001, November 23, 2001, and November 29, 2002, that it had procured hazard insurance coverage on the Dolans' primary residence due to Plaintiff's alleged non-responsiveness to prior notices regarding his failure to maintain hazard insurance coverage on that property. (Def. 56.1 ¶ 16; Exs. H-J.) Plaintiff denies receiving any such notice regarding SPS's procurement of hazard insurance. (Pl. 56.1 ¶ 16.)
In November 2002, SPS determined that Plaintiff was in default of the Third Forbearance Agreement, and the State Court Foreclosure Proceedings brought by TMS against Dolan were reinstated. (Dkt. 355 at 5.) SPS was not a named party in these proceedings. (Id.) On May 30, 2003, the mortgaged property was sold pursuant to a foreclosure order issued in the State Court Foreclosure Proceedings. Only at this point did Plaintiff—who had not previously entered an appearance in the State foreclosure action—participate, moving to vacate the judgment and subsequent sale of the property. (Id.) The State Court granted Plaintiff temporary injunctive relief and awarded him possession of the property pending the outcome of the State Court Foreclosure Proceedings. (Id.) On June 13, 2003, while those proceedings were pending, SPS sent Plaintiff a letter informing him that the note and mortgage would be serviced by Wilshire Credit Corporation beginning on July 1, 2003. (Def. 56.1 ¶ 17.)
In April 2005, the State Court granted Plaintiff's motion to set aside the judgment of foreclosure and sale, and, in relevant part, determined that Plaintiff had been injured by TMS and its servicing agents' failure to properly credit Plaintiff for payments made towards the principal and interest of the note and mortgage, as well as their failure to readjust the applicable interest rate thereon. (Dkt. 355 at 6-7.) In addition, the State Court determined that the forbearance agreements each contained "either egregious mistakes and/or overreaching and unconscionable clauses," in particular the Third Forbearance Agreement, which was "the singular most flagrant" agreement, with provisions that were "oppressive, overreaching and shock[ing] [to] the conscience of the court." (Id. (quotation marks omitted) (alteration omitted).)
The foreclosure action proceeded to trial, including on certain counterclaims asserted by Plaintiff. In a written order issued in July 2012, the State Court dismissed the foreclosure action, finding that TMS had presented insufficient evidence that Plaintiff had been in default on the note and mortgage at the time the State Court Foreclosure Proceedings were initiated. (Id. at 8-9.) As to Plaintiff's counterclaims, the State Court held that Plaintiff had established misrepresentation and breach of the duty of good faith and fair dealing as a result of "the predatory lending practices of TMS and its servicers." (Id. at 9 (alteration omitted).) TMS was ordered to reinstate the Dolans' mortgage, with interest set according to the provisions of the note and mortgage, and with all claimed arrears and accrued interest and penalties deemed cancelled, other than real estate taxes. (Id.)
On July 7, 2003, while the State Court Foreclosure Proceedings were pending, Dolan initiated the instant action, originally proceeding pro se, but now represented by pro bono counsel. After extensive motion practice, including two orders on the parties' summary judgment briefing (Dkts. 355 & 389), the lone remaining defendant is SPS, against whom Plaintiff is proceeding to trial on claims pursuant to Section 2605(b), (c), and (e) of the Real Estate Settlement Procedures Act ("RESPA"), and State law claims under breach of contract, negligence, and breach of fiduciary duty theories.
Pursuant to the leave given at a pre-trial conference held on December 1, 2015, SPS now moves for summary judgment with respect to certain aspects of Plaintiff's breach of fiduciary duty claim, as articulated by Plaintiff in the parties' proposed third amended joint pre-trial order ("3rd JPTO"). (Dkt. 421 at 3-4.) Specifically, SPS argues that it is entitled to summary judgment as to (1) whether SPS's negotiation, offer, and enforcement of the Third Forbearance Agreement can give rise to a breach of fiduciary claim, and (2) whether the alleged imposition of "force-placed" insurance without prior notice to Plaintiff can give rise to a breach of fiduciary duty claim.
Summary judgment is appropriate where the submissions of the parties, taken together, "show[] that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FRCP 56(a); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986) (summary judgment inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law"). A dispute of fact is "genuine" if "the [record] evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson at 248.
In ruling upon a summary judgment motion, the court must resolve all ambiguities and draw all reasonable inferences against the moving party. Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290, 309 (2d Cir. 2008). The Court also construes any disputed facts in the light most favorable to the nonmoving party. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-60 (1970). Nevertheless, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. . . ." Anderson, 477 U.S. at 247-48 (emphasis in original).
The initial burden of "establishing the absence of any genuine issue of material fact" rests with the moving party. Zalaski v. City of Bridgeport Police Dep't, 613 F.3d 336, 340 (2d Cir. 2010). Once this burden is met, however, the burden shifts to the nonmoving party to put forward some evidence establishing the existence of a question of fact that must be resolved at trial. Spinelli v. City of N.Y., 579 F.3d 160, 166-67 (2d Cir. 2009); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). "The non-moving party may not rely on mere conclusory allegations nor speculation, but instead must offer some hard evidence showing that its version of the events is not wholly fanciful." D'Amico v. City of N.Y., 132 F.3d 145, 149 (2d Cir. 1998) (collecting cases). Nor is a mere "scintilla of evidence" in support of the nonmoving party sufficient; rather, "there must be evidence on which the jury could reasonably find for the [non-movant]." Hayut v. State Univ. of N.Y., 352 F.3d 733, 743 (2d Cir. 2003) (quotation marks omitted) (alteration in original); see also Miner v. Clinton Cty., 541 F.3d 464, 471 (2d Cir. 2008) (nonmoving party must offer "some hard evidence showing that its version of the events is not wholly fanciful") (quotation marks omitted); Jeffreys v. City of N.Y., 426 F.3d 549, 554 (2d Cir. 2005) (nonmoving party cannot avoid summary judgment simply by relying "on conclusory allegations or unsubstantiated speculation") (quotation marks omitted). For this reason, where, "after adequate time for discovery and upon motion . . . a party [] fails to make a showing sufficient to establish the existence of an element essential to that party's case, [] on which that party will bear the burden of proof at trial," summary judgment is proper. Celotex, 477 U.S. at 322-23.
Plaintiff alleges, in his operative complaint, that SPS "assumed fiduciary duties with respect to monies it held in escrow for Plaintiff," and breached those duties "by failing to make timely tax payments from escrowed funds" and "by failing to timely process or account for escrow funds." (Dkt. 58 (Second Amended Complaint) ¶¶ 286-90.)
As an initial matter, and consistent with the Court's prior ruling on Defendant's second summary judgment motion, the Court rejects Plaintiff's assertion of issue preclusion based on decisions rendered in the State Court Foreclosure Proceedings. Issue preclusion, or collateral estoppel, bars relitigation of an issue that was fully and fairly litigated in a prior proceeding, and applies only where (1) the identical issue was raised in the prior proceeding; (2) that issue was actually litigated and decided in the prior proceeding; (3) the party against whom issue preclusion is being asserted had a full and fair opportunity to litigate the issue; and (4) resolution of the issue was "necessary to support a valid and final judgment on the merits." Bank of N.Y. v. First Millennium, Inc., 607 F.3d 905, 918 (2d Cir. 2010). Plaintiff has failed to meet his burden of establishing each of these elements.
Contrary to Plaintiff's assertion that SPS is "collaterally estopped from relitigating the question of whether their conduct violated a fiduciary duty" (Pl. Opp. at 9), the issue of whether SPS owed Plaintiff a fiduciary duty was not raised in the State Court Foreclosure Proceedings, and therefore was not actually litigated or decided in those proceedings, nor was a resolution of that issue necessary to support a valid and final judgment on the merits. First, SPS was not a party in the State Court Foreclosure Proceedings. Second, Dolan did not assert a breach of fiduciary duty claim in the State Court Foreclosure Proceedings; rather, he asserted counterclaims of, inter alia, misrepresentation and breach of the duty of good faith and fair dealing, and only as to TMS, and not SPS. (Dkt. 415-3 at ECF 1, 3.) Indeed, as Plaintiff himself strenuously argued in opposition to Defendant's second motion for summary judgment, "[t]his is a different proceeding dealing with different party [sic] and dealing with different issue [sic]," the "State Court action did not involve the present defendant," and the State Court Foreclosure Proceedings "did not require any determination of [SPS's] liability to the Plaintiff[] for the alleged wrongdoing under . . . his state law claims for . . . breach of fiduciary duty." (Dkt. 383 (Pl.'s Opposition to Def.'s Motion for Summary Judgment) at 5-8.)
The question remains, however, whether Plaintiff's new theories state a cognizable breach of fiduciary duty claim under New York law. A plaintiff asserting a breach of fiduciary duty claim under New York law must prove that (1) a fiduciary duty exists; (2) there was a knowing breach of that duty; and (3) damages resulted from said breach. See Barnett v. Countrywide Bank, FSB, 60 F.Supp.3d 379, 390 (E.D.N.Y. 2014). While "[t]he ordinary financial relationship between a mortgagor and a loan servicer does not automatically give rise to a fiduciary relationship," such a relationship may exist "where it is created by specific contractual language or additional special circumstances." Delgado v. Ocwen Loan Servicing, LLC, No. 13-CV-4427, 2014 U.S. Dist. LEXIS 135758, at *69-70 (E.D.N.Y. Sept. 24, 2014) (quotation marks omitted).
As Judge Hurley found in ruling on Defendant's first summary judgment motion, the language of the mortgage itself gives rise to a fiduciary duty, one that "obligates TMS — and . . . [SPS] as agent for [TMS] — to make specified payments, including tax payments, from the escrow funds." (Dkt. 355 at 40 (quotation marks and citation omitted).) Thus, to determine whether Plaintiff can proceed with his breach of fiduciary duty claim on the theories of negotiation, offer, and enforcement of the Third Forbearance Agreement, and imposition of force-placed insurance without prior notice, the Court must determine whether there are any additional fiduciary duties, other than the one identified by Judge Hurley, upon which Plaintiff's new theories can be based, or whether the fiduciary duty identified by Judge Hurley itself encompasses those theories.
The Court finds no contractual language, nor any special relationship between the parties, that would give rise to a broader fiduciary duty than the one identified by Judge Hurley. Such a fiduciary duty may exist in a lender-borrower relationship, but only upon a showing that the lender "enjoyed an unusual advantage resulting from the confidence that [the borrower] placed in [the lender], or [a] showing that [the lender] assumed control and responsibility outside the terms provided for in the contract" between the parties. Zorbas v. U.S. Trust Co., 48 F.Supp.3d 464, 480-81 (E.D.N.Y. 2014) (quotation marks omitted) (alteration omitted) (emphases in original).
Plaintiff has made no showing that SPS "enjoyed an unusual advantage" over Plaintiff resulting from the confidence Plaintiff reposed in SPS. See id. at 481-82 (emphasis in original). While Plaintiff argues conclusorily that he "placed trust and confidence in [SPS]," that he was "scared" and "didn't want to be homeless with [his] wife and children" (Pl. Opp. at 3), his "subjective beliefs and conclusory allegations that a `special' relationship existed are insufficient to establish a fiduciary duty." Zorbas at 486-87. Indeed, as Defendant correctly notes, "Plaintiff ignores the economic reality that every defaulting party loses leverage in negotiation." (Def. Reply
Moreover, while Plaintiff argues that SPS "had complete control over the foreclosure proceeding and could extract any kind of settlement, [] which they did" (Pl. Opp. at 11), any "control and dominance" exercised by SPS over Plaintiff in foreclosure proceedings was "authorized" by the mortgage itself, and therefore "cannot also serve as the extra-contractual source of fiduciary duty." Zorbas, 48 F. Supp. 3d at 480-81. (See Kramer Decl. Ex. B ¶ 21 (mortgage provided that, "if borrower fails to keep promises and agreements" enumerated in contract, "Lender may require that [Plaintiff] pay immediately the entire amount then remaining unpaid," and then "bring a lawsuit to take away all of [Plaintiff's] remaining rights in the Property and have the Property sold . . . known as `foreclosure and sale'").) Therefore, for Plaintiff's new theories to state a breach of fiduciary duty claim, they must be encompassed within the fiduciary duty identified by Judge Hurley.
As previously stated, Judge Hurley found the existence of a fiduciary duty with respect to managing the escrow funds as stated in the mortgage. (Dkt. 355 at 40.) But Plaintiff's theory with respect to the negotiation, offer, and enforcement of the Third Forbearance Agreement does not allege a breach of this duty. Indeed, Plaintiff's statement of claims in the 3rd JPTO makes clear that the negotiation, offer, and enforcement of the Third Forbearance Agreement is separate and distinct from his theories that are premised upon the fiduciary duty identified by Judge Hurley, i.e., that SPS "failed to give [a] proper accounting of the monies collected" in the escrow account, "failed to properly credit Dolan" for money paid into the escrow account, failed to properly allocate money Dolan paid "for weeks and in one instance for two months," and failed to "timely make payments regarding property taxes" from the escrow account, among others. (Dkt. 421 at 3-4.)
Rather, Plaintiff's arguments with respect to this theory about the Third Forbearance Agreement are premised on an argument that the Court has already rejected, namely that there exists a fiduciary duty beyond the one Judge Hurley identified. The essence of this theory is that there existed a fiduciary relationship between Plaintiff and SPS because "Dolan signed the unconscionable Forbearance Agreement with [SPS] fearing loss of his home, thus empowering [SPS] and becoming vulnerable in all aspects." (Pl. Opp. at 10-11; see also id. at 3 (SPS "offered an unconscionable and overreaching forbearance agreement to Dolan to save their home and Dolan with no choice signed the agreement"); id. at 5 (SPS "inequitably abused" the trust Dolan reposed in it "by wrongfully using its position of superiority in order to obtain an unconscionable advantage over the Dolan[s]").) However, Plaintiff has failed to show that these alleged circumstances created a fiduciary duty beyond the one identified by Judge Hurley. Plaintiff's theory appears to be, "in effect, merely [an] attempt[] to expand the very limited circumstances in which a fiduciary duty may be imposed" between a creditor and a debtor. See Gorham-Dimaggio v. Countrywide Home Loans, Inc., 592 F.Supp.2d 283, 295 (N.D.N.Y. 2008). "Courts have consistently rejected this sort of attempt to impose a heightened obligation on all aspects of the debtor-creditor relationship simply because the mortgagee makes payments from an escrow account on behalf of the mortgagor," id., and the Court does so here. Therefore, the Court grants Defendant's motion for summary judgment as to the theory of the negotiation, offer, and enforcement of the Third Forbearance Agreement as a basis for Plaintiff's breach of fiduciary duty claim.
Plaintiff's theory regarding force-placed insurance, however, presents a different situation. Plaintiff argues that SPS, "as an escrow holder, breached its fiduciary duty to Dolan by charging him unnecessary and excessive force-placed insurance . . . without prior notice," for which, Plaintiff alleges, SPS "received unearned kickbacks." (Pl. Opp. at 12; see also id. (SPS "had a fiduciary duty in connection with managing [the] escrow account, which duty was breached when [] it charged for excessive insurance and [received] related commissions in an act of self-dealing . . .") (quotation marks omitted).) The mortgage required Plaintiff to maintain hazard or property insurance, but provided that, if he failed to do so, SPS could "obtain insurance coverage to protect Lender's rights in the Property," and could "do and pay for whatever [was] necessary to protect the value of the Property." SPS, however, was required to "give [the Dolans'] notice" before taking any such action. (Kramer Decl. Ex. B ¶¶ 5, 7.) SPS admits that it "purchased a hazard insurance policy on [the Dolans' primary residence], the annual premium of which was charged to the Dolans' account." (Def. Mot.
Plaintiff seeks to call at trial a witness from Balboa. (3d JPTO at 13.)
For the reasons stated above, Defendant's motion for summary judgment is GRANTED IN PART and DENIED IN PART. Plaintiff shall be permitted to proceed to trial on his breach of fiduciary duty claim on the theory that Defendant charged premiums to his escrow account for excessive, unnecessary, and unauthorized force-placed insurance, and Plaintiff shall be permitted to proffer the testimony of a Balboa witness in connection with that claim. Plaintiff, however, is foreclosed from presenting a breach of fiduciary duty claim on the theory that Defendant negotiated, offered, and enforced the Third Forbearance Agreement.
SO ORDERED.
