NELSON S. ROMÁN, District Judge:
On October 22, 2009, Plaintiff Nance Hutter ("Plaintiff") commenced the instant action against, inter alia, Watermark Capital, Inc., a California mortgage broker ("Watermark"), Evolution Mortgage, Inc., a New York mortgage broker ("Evolution") (together "Brokers"), and Countrywide Bank, N.A., which has been acquired by Bank of America, N.A. ("Countrywide"), (collectively "Defendants"), seeking monetary damages and rescission of a $1,785 million mortgage loan provided to her by Countrywide on December 11, 2006.
Now pending before the Court is Plaintiff's motion for leave to amend the TAC. Her Proposed Fourth Amended Complaint ("PFAC") supplements factual allegations, alters factual allegations, adds new and previously dismissed parties, and apparently adds a new claim. As to joinder of parties, Plaintiff seeks to add former defendant Joseph Sciacca ("Sciacca"), President of Evolution, to Claims 2, 3, and 4; former defendant Nicholas Joutz ("Joutz"), President of Watermark, to Claims 2 and 4; and Charles Dragna ("Dragna"), Secretary and alleged principal of Watermark — who was not previously a named defendant — to Claims 2 and 4. Plaintiff also seeks to include Countrywide and Evolution as defendants on Claim 4.
In opposition, Defendants, Sciacca, Joutz, and Dragna assert that Plaintiff's proposed amendments are prejudicial at this late stage in the proceedings and that the proposed amendments would be futile. They also suggest Plaintiff's motion is brought in bad faith only in order to delay the inevitable resolution of the action. Additionally, Countrywide moves for sanctions (1) against Plaintiff's counsel pursuant to 28 U.S.C. § 1927 for unreasonably and vexatiously multiplying the proceedings, and (2) against Plaintiff and Plaintiff's counsel pursuant to Rule 11(c) for filing pleadings containing factually and legally unsupportable contentions.
For the following reasons, Plaintiff's motion to amend is denied, Countrywide's § 1927 motion for sanctions is denied, and Countrywide's Rule 11 motion for sanctions is granted. Knowledge of the factual background and procedural history is presumed.
A party may amend a pleading once as a matter of course or at any time before trial with leave of the court. Fed. R.Civ.P. 15(a)(1)-(2). If a party seeks leave to amend a pleading, "[t]he court should freely give leave when justice so requires." Fed.R.Civ.P. 15(a)(2). Nonetheless, "[r]easons for a proper denial of leave to amend include undue delay, bad faith, futility of amendment, and perhaps most important, the resulting prejudice to the opposing party." State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir.1981) (citing Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) ("In the absence of any apparent or declared reason — such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. — the leave sought should, as the rules require, be `freely given.'")).
"The rule in this Circuit has been to allow a party to amend its pleadings in the absence of a showing by the non[-]movant of prejudice or bad faith." AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 626 F.3d 699, 725 (2d Cir.2010) (quoting Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir.1993)). "Mere delay, ... absent a showing of bad faith or undue prejudice, does not provide a basis for the district court to deny the right to amend." Ruotolo v. City of New York, 514 F.3d 184, 191 (2d Cir.2008) (quoting State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir.1981)); accord Block, 988 F.2d at 350. Thus, if the underlying facts and circumstances upon which the moving party relies support a claim or defense sought to be added, the party should generally be allowed to test that claim or defense on the merits. United States ex rel. Maritime Admin. v. Cont'l Ill. Nat'l Bank & Trust Co. of Chicago, 889 F.2d 1248, 1254 (2d Cir.1989) (quoting Foman, 371 U.S. at 182, 83 S.Ct. 227); accord EEOC v. Nichols Gas & Oil, Inc., 518 F.Supp.2d 505, 508 (W.D.N.Y. 2007).
On the other hand, a district court may "deny leave to amend where the motion has been made after an inordinate delay, no satisfactory explanation is offered for the delay, and the amendment would prejudice the defendant." Cresswell v. Sullivan & Cromwell, 922 F.2d 60, 72 (2d Cir.1990). Moving to amend pleadings after the close of discovery may constitute an inordinate delay even if certain testimony adduced during discovery purportedly gives the opposing party "full and fair notice" of a new theory not alleged in the operative complaint. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 201-02 (2d Cir.2007). This is because a defendant that received notice in the complaint of the asserted claims and the grounds on which they rest "may conduct ... trial preparation accordingly and is not required, based on the plaintiff's subsequent conduct in litigation, to anticipate future claims that a plaintiff might intend to pursue." Id. at 202; cf. Berman v. Parco, 986 F.Supp. 195, 217 (S.D.N.Y.1997) (Peck, M.J.) (report and recommendation) (noting that a court "may deny a motion to amend when the movant knew or should have known of the facts upon which the amendment is based when the original pleading was filed, particularly when the movant offers no excuse for the delay").
In determining whether the opposing party would be prejudiced, courts within the Second Circuit generally consider "whether the assertion of the new claim or defense would `(i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction.'" Monahan v. N.Y.C Dep't of Corr., 214 F.3d 275, 284 (2d Cir.2000) (quoting Block, 988 F.2d at 350). "[T]he longer the period of an unexplained delay, the less will be required of the nonmoving party in terms of a showing of prejudice." Block, 988 F.2d at 350 (quoting Evans v. Syracuse City Sch. Dist., 704 F.2d 44, 47 (2d Cir.1983)).
Leave to amend may alternatively be denied "on grounds of futility if the proposed amendment fails to state a legally cognizable claim or fails to raise triable issues of fact." AEP Energy, 626 F.3d at 725-26 (quoting Milanese v. Rust-Oleum Corp., 244 F.3d 104, 110-11 (2d Cir.2001)); accord Ruotolo, 514 F.3d at 191 (quoting Foman, 371 U.S. at 182, 83 S.Ct. 227). To determine futility, courts
In considering the following proposed amendments, the Court is mindful of the circumstances in which Plaintiff expressed her desire to amend the complaint. The TAC was filed November 15, 2011. According to the Discovery Plan and Scheduling order entered May 24, 2012, the deadline to join parties was November 28, 2012, with amended pleadings allowed on consent or by court order. The deadline for expert discovery was extended a number of times from January 30, 2013, as was the December 5, 2012, deadline for conducting fact depositions.
On November 7, 2013, after the close of discovery, the parties appeared before the Court at a conference to discuss the progression of the action. The parties represented that discovery was compete. Plaintiff expressed that she hoped to depose another witness proffered by Countrywide.
On November 11, 2013, Plaintiff wrote to the Court requesting permission to propose additional changes in her motion to amend the complaint. These changes would include assertions that Countrywide failed to ensure Plaintiff could repay her loan due to its business model of selling loans to securitization trusts, that Plaintiff suffered from duress and incapacity on the day of her loan closing, that she suffered certain consequential damages for which she would seek recovery, that Evolution's president Sciacca should be rejoined as a
Given the lengthy nature of this action commenced in 2009, the numerous extensions of discovery deadlines, and Plaintiff's delay in seeking to amend, "dilatory motive on the part of the movant" seems "apparent" to the Court. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). Nonetheless, the Court considers each proposed amendment in turn.
Plaintiff asserts that based on information gathered during discovery, Dragna and Joutz, who are officers of Watermark, may be held personally liable for Watermark's wrongful acts under the GBL and Banking Law because they personally participated therein or they had the authority to control Watermark and knew of its wrongful acts. (Pl.'s Br. 3 n. 4 (citing FTC v. Crescent Publ'g Grp., Inc., 129 F.Supp.2d 311, 324 (S.D.N.Y.2001)).) According to Plaintiff, Dragna did brokerage work for Plaintiff's loan and accepted payment from Evolution for this work although he was unlicensed in New York, in violation of the Banking Law. She also avers that Joutz, as Watermark's president, knew or should have known of Dragna's conduct. Dragna asserts the action as against him is barred by a six-year statute of limitations. See N.Y. C.P.L.R. § 213. Joutz asserts that there is no evidence of his personal involvement in or knowledge of mortgage brokerage services performed by Dragna.
As to Dragna's statute of limitations argument, GBL § 349 is actually governed by a three-year statute of limitations, N.Y. C.P.L.R. § 214(2); Pike v. N.Y. Life Ins. Co., 72 A.D.3d 1043, 901 N.Y.S.2d 76 (2d Dep't 2010), which applies to liabilities created or imposed by statute. Liability under the Banking Law is likewise created or imposed by statute, see N.Y. Banking Law § 598(5) ("If any non-exempt unlicensed or unregistered person or entity engages in activities encompassed by this article, he shall be liable to any person or entity affected by such activities ...."), such that the same three-year statute of limitations applies, N.Y. C.P.L.R. § 214(2). Thus, as Plaintiff's claim accrued in December 2006, the PFAC would be futile as against Dragna. Although Plaintiff asserts that the statute of limitations should be equitably tolled, based on Watermark's alleged concealment of a check, this contention is unavailing. "Equitable tolling is generally considered appropriate ... where plaintiff was unaware of his or her cause of action due to misleading conduct of the defendant ...." Zerilli-Edelglass v. N.Y.C. Transit Auth., 333 F.3d 74, 80 (2d Cir.2003) (citing Miller v. Int'l Tel. & Tel. Corp., 755 F.2d 20, 24 (2d Cir.1985)). Here, Plaintiff has made no such showing.
As to former defendant Joutz, Plaintiff was previously allowed to re-plead allegations against him "to better articulate a basis of this Court's personal jurisdiction over Joutz, if she can do so in compliance with Rule 11." (Doc. 39, Order of May 23, 2011 (Seibel, J.) ¶ 10, at 5.) In the First Amended Complaint ("AC"), Plaintiff alleged that Joutz "created the company policies, and participated in making the decisions" leading to Watermark becoming associated with Plaintiff's loan, bringing Evolution into the deal, and illegally accepting a commission. (Doc. 7, AC ¶ 42.) The PFAC now alleges that Joutz "knew, or should have known" that Watermark illegally brokered Plaintiff's loan and that Dragna deposited a check from Evolution, written out to Dragna, into the Watermark corporate account. (PFAC
Plaintiff seeks to add Sciacca, Evolution's president and CEO, as a defendant on Claims 2 through 4 alleging violations of the GBL, RESPA, and Banking Law, respectively. Sciacca was previously named as a co-defendant on these claims in the AC. In granting Sciacca's motion to dismiss the AC, Judge Seibel simultaneously granted Plaintiff "leave to plead additional facts [in the Second Amended Complaint] demonstrating that Sciacca was personally involved in the allegedly actionable conduct under New York General Business Law § []349 and RESPA, [provided] she c[ould] do so in compliance with Rule 11 of the Federal Rules of Civil Procedure." (Doc. 39, Order of May 23, 2011 (Seibel, J.) ¶ 11, at 5.) Here, Plaintiff's arguments center primarily on Sciacca's violation of Banking Regulations, which are promulgated under the Banking Law. However, Judge Seibel did not give Plaintiff leave to re-plead her Banking Law claim against Sciacca. Thus, the Court cannot allow this particular amendment. See Virgin Atl. Airways, Ltd. v. Nat'l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir.1992) ("[W]here litigants have once battled for the court's decision, they should neither be required, nor without good reason permitted, to battle for it again." (quoting Zdanok v. Glidden Co., 327 F.2d 944, 953 (2d Cir.1964))). Additionally, as Plaintiff fails to assert any facts tending to demonstrate that Sciacca violated RESPA but merely inserts his name in the heading of this claim, (PFAC ¶¶ 65-87), such amendment would be futile.
In opposition, Sciacca asserts he cannot be held liable because corporate officers acting in furtherance of the corporate business cannot be held liable on the basis that "an agent for a disclosed principal will not be personally bound unless there is clear and explicit evidence of the agent's intention to substitute or superadd his personal liability for, or to, that of his principal." Savoy Record Co. v. Cardinal Export Corp., 15 N.Y.2d 1, 4, 254 N.Y.S.2d 521, 203 N.E.2d 206 (1964); accord Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Chukchansi Econ. Dev. Auth., 104 A.D.3d 467, 468, 961 N.Y.S.2d 110 (1st Dep't 2013); see also Yellow Book of NY, LP v. DePante, 309 A.D.2d 859, 860, 766 N.Y.S.2d 44 (2d Dep't 2003) (finding triable issue of fact on corporate officer's individual liability for breach of contract which he signed on company's behalf included clause on reverse side providing that the signer "personally undertake[s] and assume[s] the full performance hereof"). The Court notes that Sciacca proffered the same argument in his motion to dismiss the AC. (See Doc. 14-2 ¶¶ 11, 15.)
The Court need not address Sciacca's argument, since it is abundantly clear that Plaintiff has wholly failed to allege facts — much less identify evidence in the record — tending to demonstrate Sciacca's personal involvement in any deceptive acts directed at consumers which were misleading in a material way. Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 25, 623 N.Y.S.2d 529, 647 N.E.2d 741 (1995); accord Spagnola v. Chubb Corp., 574 F.3d 64, 74 (2d Cir.2009); Maurizio v. Goldsmith, 230 F.3d 518, 521 (2d Cir.2000); City of New York v. Smokes-Spirits.com, Inc., 12 N.Y.3d 616, 621, 883 N.Y.S.2d 772, 911 N.E.2d 834 (2009); Goshen v. Mut. Life Ins. Co. of N.Y., 98 N.Y.2d 314, 324, 746 N.Y.S.2d 858, 774 N.E.2d 1190 (2002). Accordingly, the allegations in the PFAC against Sciacca would be futile. Plaintiff's application seeking to assert or reassert claims as against him must be denied.
Plaintiff wishes to alter the theory of certain portions of the TAC. First, she seeks to remove an allegation which has been asserted since 2009, but is now admitted to be an untrue statement, that Defendants "told [Plaintiff] an adjustable-rate loan was right for her, when they knew that the loan was unsuitable because [Plaintiff]'s income was unlikely to increase." (TAC ¶ 57(c).) Second, Plaintiff seeks to assert that her husband, rather than she, negotiated the loan as her agent. (See PFAC ¶¶ 16a, 16b, 57(e).) Third,
A review of the court file reveals that Plaintiff has consistently alleged that Defendants told her the adjustable rate mortgage was right for her. (See Doc. 1, Verified Compl. ¶ 143(c); Doc. 7, AC ¶ 57(c); Doc. 37, SAC ¶ 57(c); Doc. 49, TAC ¶ 57(c)). Evolution thus questions Plaintiff's good faith in proposing to remove it, as an untrue statement, after the close of discovery and immediately after Defendants informed the Court of their intentions to file summary judgment motions. Evolution also asserts that the new agency theory will require it to conduct further depositions, as it did not pursue this line of questioning in this case or any of the other cases Plaintiff has brought against it in connection with other adjustable rate mortgages because Plaintiff's husband was never alleged to be her agent. Watermark likewise asserts it did not depose Plaintiff's husband on the issue of agency, as its defense strategy was based on challenging the allegations in the TAC, the operative complaint since November 2011. Watermark thus requests the opportunity to depose Plaintiff's husband if the Court should allow Plaintiff to amend the complaint. Countrywide asserts that Plaintiff's effort to remove the admittedly false allegation concerning the adjustable rate mortgage, while leaving in the assertion that the promised 1.5% interest rate turned out to be 8.125%, would be futile because Countrywide would be able to present the original allegation to a jury. Countrywide also asserts that changing this allegation would be prejudicial post-discovery.
The Court finds that both proposed changes would be prejudicial to Defendants, because knowledge of the facts to support these newly asserted allegations were within Plaintiff's grasp prior to commencing this action yet she failed to timely assert them. See Berman v. Parco, 986 F.Supp. 195, 217 (S.D.N.Y.1997). The more than four years' delay in seeking to assert these allegations, with no explanation given, see Cresswell v. Sullivan & Cromwell, 922 F.2d 60, 72 (2d Cir.1990), has already caused significant delay in resolving this action, see Monahan v. N.Y.C. Dep't of Corr., 214 F.3d 275, 284 (2d Cir. 2000). Moreover, Defendants conducted discovery based on the four previously pleaded complaints and were not required to anticipate the above changes based on Plaintiff's conduct during litigation. See McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir.2007). Thus, the inordinate delay in seeking to amend, the lack of an explanation for the delay, and the prejudicial effect on Defendants warrant denial of Plaintiff's application.
Accordingly, permission to remove ¶ 57(c) and to allege Plaintiff's husband was her agent must be denied.
As to duress, Plaintiff seeks to allege that her husband requested that the closing be delayed due to Plaintiff's condition after the automobile accident, but that Watermark "insisted that if the closing did not take place on 11-DEC-2006, [Plaintiff] would lose the opportunity to take out a $1,875 million Countrywide loan at a rate of 1.5% interest." (PFAC ¶ 10b.) As to incapacity, Plaintiff alleges the accident left her "with a permanent 21% disability rating for cognitive impairment." (Id. ¶ 10a.) Plaintiff also seeks to add a new prayer for relief to void the loan based on her incapacity. (Id. Request for Damages ¶ b (first of two).) Watermark asserts that Plaintiff's new allegations of duress and incapacity are facts which Plaintiff should have known before the commencement of this lawsuit, and that their assertion at this stage is "a desperate attempt to save a sinking ship." (Watermark Opp'n Br. 10.) Evolution likewise asserts the duress and incapacity allegations should have been ascertained before the initial complaint was filed. Evolution adds that Plaintiff attended the closing voluntarily. Countrywide concurs that Plaintiff was aware of her purported disability before filing the instant action, and argues that Plaintiff can show neither duress nor her incompetence.
As with the false statement and the husband-agency theory, the Court finds that Defendants would be prejudiced if Plaintiff were allowed to add facts to the complaint of her purported duress and her alleged incapacity more than four years after bringing the instant action. Cf. Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir.1993) ("[T]he longer the period of an unexplained delay, the less will be required of the nonmoving party in terms of a showing of prejudice."). Plaintiff knew or should have known of these facts before bringing this action, Berman, 986 F.Supp. at 217, has given no explanation for the delay in asserting these facts, Cresswell, 922 F.2d at 72, and has caused significant delay in this action's resolution by seeking to assert these new facts at this time, Monahan, 214 F.3d at 284.
Allowing the duress allegation would also be futile. "To void a contract on the ground of duress, a party must establish that he or she was forced to agree to it by means of a wrongful threat which precluded the exercise of his [or her] free will ...." Family Tree Adoption
Finally, both duress and incapacity assertions are futile for another reason. Despite Plaintiff's assertions to the contrary, the duress and incapacity assertions and the prayer to void the loan contract add a new claim for rescission under state contract law. As contract claims are subject to a six-year statute of limitations, N.Y. C.P.L.R. § 213(2), the time period to add this new claim expired on December 11, 2012. Plaintiff attempts to incorporate this claim into her GBL claim, which requires a showing of conduct aimed at consumers generally that is also materially misleading. Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 25, 623 N.Y.S.2d 529, 647 N.E.2d 741 (1995). However, nothing in the new allegations is sufficient to meet the requisite showing. Accordingly, Plaintiff's application to assert lack of capacity and execution of the contract under duress must be denied.
Plaintiff's first new theory of damages relies on the assertion that she passed up the opportunity to sell her home in 2006, when housing prices peaked and her home was valued at more than $2.5 million, because she was promised the 1.5% fixed rate loan. Evolution asserts that since Plaintiff's interest rate was actually 1.5% during the first few years of the loan, she still could have sold her home, and thus any purported losses are speculative. Evolution also avers, without citation, that the Countrywide loan paid off previous loans and allowed Plaintiff to cash out significant sums of home equity. Countrywide asserts Plaintiff's losses due to her decision not to sell the home are speculative. Countrywide notes that the PFAC asserts for the first time that "[e]ver since [she] bought her home ..., she had planned to improve the property and then sell it," (PFAC ¶ 46a), but that Plaintiff testified she had not retained a broker to assist her in selling the house, (see Countrywide Ex. M, Pl.'s Dep. at 426:19-23).
Plaintiff's second new theory of damages asserts loss of dividend income from and unrealized capital appreciation in stock of a family-owned company, Industrial Distribution Corp., that was going to manufacture temporary housing for victims of natural disasters. She seeks to allege the losses occurred because she was unable to secure a separate loan after she defaulted
The Court finds that asserting these consequential damages into the PFAC at this stage in the litigation would prejudice Defendants. Plaintiff contends that Defendants would not be surprised or prejudiced because they knew about her purported plan to sell the home and her purported losses of dividend income after her damages expert submitted his report in April 2013. In reply, Plaintiff also asserts the consequential damages theories were disclosed in her Rule 26(a)(1) initial disclosures of June 25, 2012. (See Pl.'s Countrywide Reply Ex. K ¶ iii, at 4-5.) However, as with the other allegations, Plaintiff knew or should have known about these facts before bringing the action in 2009, Berman, 986 F.Supp. at 217, has not explained why she delayed so long in bringing these new theories of damages, Creswell, 922 F.2d at 72, and has significantly delayed resolution of this action by seeking to assert them, Monahan, 214 F.3d at 284. At the very least, Plaintiff should have asserted these facts and prayers for relief in the TAC filed November 15, 2011.
The dividend damages amendment is also futile. FDIC v. Great Am. Ins. Co., 607 F.3d 288, 292 (2d Cir.2010) (plaintiffs "may not rely on conclusory allegations or unsubstantiated speculation" (quoting Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir.1998))). Plaintiff bases her damage calculations on her damages expert's report. (Pl.'s Ex. L.) However, the expert report itself bases its calculations on Plaintiff's husband's supposed business plan which, inter alia, is not dated, bears the title "Flutters and IDC losses due to Countrywide, et. [sic] al. scheme," and lists 2009 production costs and a list price without any substantiation whatsoever. (Ex. H to Pl.'s Ex. L.) The profit calculation is also based on the premise that Plaintiff could have sold her home in 2006. (Id.) To the extent Plaintiff includes her husband's marketing material as an exhibit to her reply papers, Plaintiff does not assert these materials were ever disclosed during discovery, nor is this clear from the documents. (Pl's Countrywide Reply Ex. M.) Plaintiff also fails to explain how her husband's marketing material corroborates her measure of damages. Accordingly, leave to add the new consequential damages theories must be denied.
Plaintiff seeks to add, in the GBL allegations of Claim 2, that Countrywide violated the Banking Law. (PFAC ¶ 57(u)-(v).) Plaintiff asserts that a fax demonstrates Countrywide dealt with Watermark, (Pl.'s Ex. P), and that Watermark's purported employee Todd Matthews ("Matthews")
Countrywide asserts this new allegation would be futile because the record developed in discovery does not support Plaintiff's assertion. Countrywide notes that Plaintiff's story has changed since 2010, when her husband averred that "Matthews told me that his company was not licensed as a mortgage broker in New York State, so he would get a local mortgage broker to handle our loan." (Doc. 20-3, G. Hutter Aff. of June 3, 2010 (submitted in opposition to Defs.' Mots. to Dismiss) ¶ 7.)
The Court finds this amendment would be futile. The facts underlying Plaintiff's new allegations do not tend to demonstrate any deceptive acts directed at consumers which were misleading in a material way, as required to prove a violation of GBL § 349. Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 25, 623 N.Y.S.2d 529, 647 N.E.2d 741 (1995). Nor do these facts support Plaintiff's contention that Countrywide violated the Banking Law. Plaintiff cites to no evidence in the record — other than her husband's new affidavit which directly conflicts with his 2010 affidavit — showing that Matthews told Plaintiff's husband that Countrywide brought Evolution into the deal. Plaintiff otherwise merely speculates that her husband's version is accurate because Dragna and Sciacca cannot remember every detail of the training session where they purportedly met. FDIC v. Great Am. Ins. Co., 607 F.3d at 292.
Furthermore, this amendment would prejudice Countrywide, as Plaintiff's husband knew or should have known when the original complaint was filed that in 2006 Matthews told him Countrywide brought Evolution into the deal. Berman, 986 F.Supp. at 217. Accordingly, Plaintiff's application seeking this amendment must be denied.
In addition to Joutz, Dragna, and Sciacca, Plaintiff seeks to add Evolution and Countrywide as defendants on her Banking Law claim based on their purported violations of state banking regulations. As explained above, there is insufficient evidence to support Plaintiff's contention that Countrywide violated the Banking Law and regulations. FDIC v. Great Am. Ins. Co., 607 F.3d 288, 292 (2d Cir.2010) (plaintiffs "may not rely on conclusory allegations or unsubstantiated speculation"). Countrywide also properly notes that the Banking Law only grants a private right of action in certain situations, which include (a) recovery of liquidated damages in an action "against a licensee, registrant or exempt organization for breach of contract or agreement to make a mortgage loan," N.Y. Banking Law § 598(3), and (b) recovery from a "non-exempt unlicensed or unregistered person or entity [which] engage[d] in activities encompassed by this article" of up to four times the amount a
Under the plain language of the statute, Plaintiff would have a private right of action against Countrywide only if it had breached its agreement to make the loan to Plaintiff. However, this did not happen. Thus, Plaintiff has no cognizable claim pursuant to the statute as against Countrywide. The Court declines to imply such a private right of action in a state statute, as Plaintiff requests, since Plaintiff cites no New York law suggesting such a right is implicit.
As to reasserting this claim against Evolution, Judge Seibel previously granted Evolution's motion to dismiss the Banking Law claim for failure to state a claim. (Doc. 39, Order of May 23, 2011 (Seibel, J.) ¶ 7, at 4.) Although Judge Seibel granted Plaintiff's motion for leave to file a Second Amended Complaint ("SAC") on this claim, the order gave Plaintiff such leave "only as against Watermark." (Id.) Thus, as with Sciacca, there is no legal basis to permit this particular amendment. Virgin Atl. Airways, Ltd. v. Nat'l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir.1992) (quoting Zdanok v. Glidden Co., 327 F.2d 944, 953 (2d Cir.1964)).
Accordingly, adding Countrywide and Evolution to the Banking Law claim would be futile, and leave to amend must be denied.
Plaintiff seeks to add certain facts as asserted in the report of her expert, Professor Raymond H. Brescia ("Brescia"). Specifically, Plaintiff wishes to allege that her loan was one of thousands Countrywide made to borrowers from 2003 through 2008 with the intention of securitizing and selling the mortgages to securitization trusts, thus profiting from the loans' value while no longer retaining the risk of borrower default. (PFAC ¶¶ 37a, 37b, 57(g)(1).) Plaintiff avers that the new allegations explain Countrywide's treatment of her, as it "lackadaisically accepted and sought no documentary confirmation of ... [the] false statement that [Plaintiff] earned $38,500 a month." (Pl.'s Br. 12.)
Countrywide asserts it did not violate the GBL by accepting Plaintiff's assertions of her income, as Judge Seibel already determined. (See Hr'g Tr. of Sept. 23, 2011 (Seibel, J.) at 10:19-23 ("I agree that offering a no-doc loan is in itself not improper conduct by the lender nor is `just accepting' the representations in [P]laintiff's application.'")); cf. Giordano v. Giammarino, No. 0102961/2006, 2008 N.Y. Misc. LEXIS 7753, at *13, 2008 WL 135156 (Sup.Ct. Richmond Cnty. Jan. 8, 2008) ("[I]t is not a deceptive act or practice to proceed with an arms-length transaction without attempting to ascertain the extent of every consumer's appreciation of the ramifications of his or her decision, and whether that decision is in his or her overall best interest." (citing Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 26, 623 N.Y.S.2d 529, 647 N.E.2d 741 (1995))). Countrywide thus argues that the new allegations would suggest otherwise, contrary to the law of the case. (See Hr'g Tr. of Sept. 23, 2011 (Seibel, J.) at 11:8-11 (granting Countrywide's motion to strike paragraph 21 of the SAC "to the extent that [it] suggest[ed] there was anything improper about Countrywide offering a no-doc loan or accepting the representations on the mortgage application.").) Countrywide
The Court finds that only a portion of the new allegations run afoul of the law of the case doctrine. The doctrine "posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages of the same case." Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983); see also Virgin Atl. Airways, Ltd. v. Nat'l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir.1992) ("[W]here litigants have once battled for the court's decision, they should neither be required, nor without good reason permitted, to battle for it again." (quoting Zdanok v. Glidden Co., 327 F.2d 944, 953 (2d Cir.1964))). Courts generally do not revisit previous decisions unless there has been "an intervening change in law, availability of new evidence, or the need to correct a clear error or prevent a manifest injustice." Johnson v. Holder, 564 F.3d 95, 99-100 (2d Cir.2009) (internal quotation marks and citation omitted); accord FTC v. Consumer Health Benefits Ass'n, No. 10 Civ. 3551(ILG)(RML), 2012 WL 1890242, at *4 (S.D.N.Y. May 23, 2012). Here, only paragraph 57(g)(1) of the PFAC implies that accepting the representations on Plaintiff's mortgage application was improper, insofar as it states that Countrywide "made no effort to learn whether Hutter could afford its $1.785 million loan to her ...." The remainder of this paragraph, as well as paragraphs 37a and 37b, do not attempt to allege matters previously stricken from the record, and appear relevant to the issue under GBL § 349 whether Countrywide's actions were consumer oriented.
Nevertheless, in light of the circumstances in which Plaintiff seeks to make these amendments — over six months after Brescia provided his report and after Defendants' declared their intention to file motions for summary judgment — it is apparent to the Court that Plaintiff seeks this amendment merely to delay the proceedings. Cf. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) (noting motions to amend pleadings may be denied where there is an "apparent or declared reason" for denial, "such as ... dilatory motive"). Accordingly, this portion of Plaintiff's motion to amend the complaint must also be denied.
Plaintiff seeks to allege, in the Statement of Facts and the GBL claim, that Watermark and Evolution acted as Countrywide's agents only. (PFAC ¶¶ 12, 57(a), 57(b), 57(d), 57(g), 57(l).) For the proposition that Watermark and Evolution were acting as Countrywide's agents, Plaintiff relies on (a) the existence of contracts between Countrywide and its Brokers, Evolution and Watermark, and (b) the "totality of the circumstances" at the time Plaintiff was negotiating her loan — including that "Countrywide used its network of brokers to lend to thousands of borrowers who could not afford its loans."
In New York, "an agency relationship `results from a manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and the consent by the other to act.'" N.Y. Marine & Gen. Ins. Co. v. Tradeline (L.L.C.), 266 F.3d 112, 122 (2d Cir.2001) (citation omitted). An agency relationship may be established by express language, see, e.g., Pensee Assocs., Ltd. v. Quon Indus., Ltd., 241 A.D.2d 354, 355, 660 N.Y.S.2d 563 (1st Dep't 1997) (plaintiff owner of telephones agreed to allow defendant to sell them on commission basis), or may be implied by conduct of the principal. Alternatively, "[a]pparent authority may exist in the absence of authority in fact, and, if established, may bind one to a third party with whom the purported agent had contracted even if ... the third party is unable to carry the burden of proving that the agent actually had authority." Greene v. Hellman, 51 N.Y.2d 197, 204, 433 N.Y.S.2d 75, 412 N.E.2d 1301 (1980). Where an agency relationship is established, knowledge of the agent in all matters within the scope of the agency is imputed to the principal. See Gulf Ins. Co. v. Transatlantic Reinsurance Co., 69 A.D.3d 71, 97, 886 N.Y.S.2d 133 (1st Dep't 2009) (quoting Farr v. Newman, 14 N.Y.2d 183, 187, 250 N.Y.S.2d 272, 199 N.E.2d 369 (1964)).
Both implied actual authority and apparent authority are "dependent on verbal or other acts by a principal which reasonably give an appearance of authority to conduct the transaction." Greene v. Hellman, 51 N.Y.2d 197, 204, 433 N.Y.S.2d 75, 412 N.E.2d 1301 (1980). "[I]n the case of implied actual authority, these [acts] must be brought home to the agent, while in the apparent authority situation, it is the third party who must be aware of them." Id.; see also Pyramid Champlain Co. v. R.P. Brosseau & Co., 267 A.D.2d 539, 544, 699 N.Y.S.2d 516 (3d Dep't 1999) ("An agency relationship by conduct may be established by words or conduct of a principal, communicated to a third party, that gives rise to an appearance and reasonable belief that an agency has been created and the agent possesses the authority to enter into a transaction." (internal quotation marks and citation omitted)). In the case of apparent authority, "the third party's reasonable reliance upon the appearance of authority binds the principal." Standard Funding Corp. v. Lewitt, 89 N.Y.2d 546, 551, 656 N.Y.S.2d 188, 678 N.E.2d 874 (1997).
As to implied agency, the contracts between Countrywide and the Brokers are insufficient to demonstrate the existence of an agency relationship. The Wholesale Brokers Agreement, to which Plaintiff refers, expressly forbids Watermark and Evolution from holding themselves out as Countrywide's agents. (See Pl.'s Ex. R ¶ 9.2, at 14 ("[N]either party shall at any time hold itself out to any third party to be an agent or employee of the other.").) Countrywide also identifies the contractual provision stating the Brokers "shall not be obligated to submit any or all loan funding requests that [they] broker[] to Countrywide," as the arrangement "is a non-exclusive agreement." (Id. ¶ 9.4, at 14.) Plaintiff argues that courts are "not bound by the disclaimer of ... agency between the parties in determining their true relationship." Rubenstein v. Small, 273 A.D. 102, 104, 75 N.Y.S.2d 483
Plaintiff's reliance on her liability expert, Brescia, is equally unavailing. Brescia reports without citation that Countrywide "worked with a network of mortgage brokers that helped to steer prospective borrowers towards" it, often compensating brokers through yield spread premiums. (Pl.'s Ex. K ¶ 66, at 21.) There is otherwise no testimony showing that Watermark or Evolution believed from Countrywide's conduct that they were agents owing Countrywide a fiduciary duty. Thus, the implied agency theory fails.
As to apparent agency, or agency by estoppel, Plaintiff's contention that Watermark made promises on behalf of Countrywide is not borne out by the Good Faith Estimate upon which Plaintiff relies. The estimate states explicitly that it "is being provided by Watermark Capital[,] a mortgage broker[,] and no lender has been obtained." (Pl.'s Ex. Q.) Plaintiff's reliance on her husband's deposition of October 15, 2013, where he testified that Watermark's purported employee Matthews was promoting a 1.5% interest rate but did not say who the lender was until one or two months before the closing, (Pl.'s Ex. J, at 40:18-25), is also unavailing, as he never expresses that Countrywide itself performed verbal or other acts showing Watermark or Evolution were apparently authorized to act on its behalf, see Greene, 51 N.Y.2d at 204, 433 N.Y.S.2d 75, 412 N.E.2d 1301. As Countrywide points out, Plaintiff previously alleged, inter alia, that "the bank ... told Hutter that she could afford the monthly payments," (TAC ¶ 57(a)), "Countrywide ... assured Hutter that refinancing would help her," (Id. ¶ 57(b)), "[D]efendants told Hutter than an adjustable-rate loan was right for her," (Id. ¶ 57(c)), "the lender Countrywide ... falsely assured her that housing prices would keep rising," (Id. ¶ 57(j)), "Countrywide... assured Hutter that she did not need a lawyer at her loan's closing ceremony," (Id. ¶ 57(k)), and "Countrywide ... told Hutter that Countrywide's refinancing would help her," (Id. ¶ 57(n)). However, both Plaintiff and her husband denied ever having contact with Countrywide prior to closing. (Countrywide Ex. M, Pl.'s Dep. at 24:21-24; Countrywide Ex. N., G. Hutter Dep. at 25:11-15.) Thus, the apparent authority theory of agency also fails, and the amendment would be futile.
Countrywide asserts the amendment would also be prejudicial. It asserts that based on the allegations, it had no incentive to examine Watermark or Evolution witnesses on the implied agency theory. Thus, Countrywide avers it would be required to expend significant additional resources to depose Watermark and Evolution witnesses on whether the Brokers believed from Countrywide's conduct that they were agents under this theory. Countrywide additionally asserts that "Plaintiff could have, but did not, make this allegation from the start," (Countrywide Opp'n Br. 10), especially since the initial complaint referenced the broker agreements Countrywide had with Evolution and Watermark, (see Doc. 1, Verified Compl. ¶ 14, at 9). Plaintiff argues in reply that Countrywide anticipated an agency theory by asserting cross-claims against Watermark and Evolution, and thus should have already conducted discovery on the cross-claims. However, Countrywide merely alleged against the Brokers:
(Doc. 50, Countrywide Answer with Cross Claims ¶ 24.) This is insufficient to demonstrate Countrywide anticipated this agency theory. Thus, Defendants would likely need to conduct further discovery to determine whether Evolution or Countrywide had implied actual authority to be Countrywide's agent, and this additional discovery would add significant delay to the resolution of the instant action. See Monahan v. N.Y.C. Dep't of Corr., 214 F.3d 275, 284 (2d Cir.2000). Accordingly, the amendment would be prejudicial to Defendants, and the motion to amend must be denied as to this new agency theory.
Plaintiff seeks to add allegations to paragraph 19, and to add a new paragraph 20a, to expound on previously alleged facts. In particular, Plaintiff seeks to allege that either Evolution or Watermark invented a false monthly income figure of $38,500 on her loan application, that the application did not exist until the loan closing date, and that Countrywide thus could not have relied on her reported monthly income in deciding to extend her the loan. Plaintiff relies on the following portion of her deposition testimony for the contention that Countrywide did not have the purported income figure before the closing date:
(Pl.'s Countrywide Reply Ex. H, Pl's Dep. at 40:2-21.) Plaintiff also cites the deposition of Countrywide's purported Vice President Lanisa Jenkins ("Jenkins") for support. (Pl.'s Countrywide Reply Ex. I, Jenkins Dep. at 85:9-87:2.) There, Jenkins testified that Countrywide normally relied upon financial and income information in loan applications. However, she could not remember specifically whether she relied on the loan application in Plaintiff's case. Countrywide in opposition cites to internal documents produced in discovery which were last updated on October 2, 2006 — more than two months before the closing — indicating Plaintiff's monthly income was $38,500, the exact figure indicated on the loan application. (Countrywide Ex. K.)
Whether or not the additional allegations are based on evidence in the record, they simply reiterate facts already alleged. (See TAC ¶¶ 18-21, 57(e), 57(g).) As the new allegations add nothing of substance, they do not create a triable issue of fact. Milanese v. Rust-Oleum Corp., 244 F.3d 104, 110 (2d Cir.2001). Moreover, as Plaintiff informed the Court of her intention to
Countrywide seeks sanctions against Plaintiff's counsel, Stephen A. Katz ("Katz") on the basis that Plaintiff's motion to amend the complaint was made for no legitimate purpose. Under federal law, "[a]ny attorney ... who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." 28 U.S.C. § 1927. To impose sanctions, the attorney's actions must be "so completely without merit as to require the conclusion that they must have been undertaken for some improper purpose such as delay." Oliveri v. Thompson, 803 F.2d 1265, 1273 (2d Cir.1986); see also Agee v. Paramount Commc'ns, Inc., 114 F.3d 395, 398 (2d Cir.1997) (holding a court "must find clear evidence that (1) the offending party's claims were entirely meritless and (2) the party acted for improper purposes") (citing Oliveri, 803 F.2d at 1273). There must also be a showing of "subjective bad faith by counsel." MacDraw, Inc. v. CIT Grp. Equip. Fin., Inc., 73 F.3d 1253, 1262 (2d Cir.1996); accord Johnson ex rel. United States v. Univ. of Rochester Med. Ctr., 642 F.3d 121, 125-26 (2d Cir.2011); Gollomp v. Spitzer, 568 F.3d 355, 368 (2d Cir.2009).
Countrywide asserts that Plaintiff's PFAC is so meritless and without demonstrable purpose that it establishes Katz's bad faith. Countrywide identifies purportedly glaring inconsistencies between each previous complaint and the PFAC which have been previously addressed, including, inter alia, the extent to which Plaintiff and her husband had contact with Countrywide directly and the now-asserted falsehood that Plaintiff was told an adjustable rate loan was right for her. Countrywide also takes issue with Plaintiff's speculation that it introduced Dragna and Sciacca to each other, claims in the PFAC precluded by the law of the case doctrine, and the new affidavit from Plaintiff's husband which contradicts his prior affidavit submitted in 2010. The Court notes, however, that some of Plaintiff's proposed amendments were not entirely meritless, based on the existence of evidence in the record, despite having found either prejudice or apparent dilatory motive sufficient to deny amendment.
Countrywide seeks the sanctions of dismissal and/or payment of its reasonable legal expenses against Plaintiff and Katz for knowingly making false factual allegations in the PFAC and previous complaints. Under the Federal Rules of Civil Procedure,
Fed.R.Civ.P. 11(b)(2)-(3). The rule imposes on attorneys the affirmative duty "to conduct a reasonable inquiry into the viability of a pleading before it is signed." Eastway Constr. Corp. v. City of New York, 762 F.2d 243, 253 (2d Cir.1985); accord Bus. Guides, Inc. v. Chromatic Commc'ns Enters., Inc., 498 U.S. 533, 542, 111 S.Ct. 922, 112 L.Ed.2d 1140 (1991). The standard imposed is an objective standard of reasonableness under the circumstances of the individual case. MacDraw, Inc. v. CIT Grp. Equip. Fin., Inc., 73 F.3d 1253, 1257 (2d Cir.1996) (citing Bus. Guides, Inc., 498 U.S. at 548, 111 S.Ct. 922). To determine whether a violation has occurred, a court must avoid hindsight and resolve all doubts in favor of the signer. Oliveri v. Thompson, 803 F.2d 1265, 1275 (2d Cir.1986). "If ... the court determines that Rule 11(b) has been violated, the court may impose an appropriate sanction on any attorney, law firm, or party that violated the rule or is responsible for the violation." Fed.R.Civ.P. 11(c)(1). Monetary sanctions may not be imposed on a represented party for violations of Rule 11(b)(2). Fed.R.Civ.P. 11(c)(5)(A). Finally, the decision whether to impose sanctions is left to a court's discretion. Perez v. Posse Comitatus, 373 F.3d 321, 325 (2d Cir.2004).
Countrywide asserts the following constitute violations of Rule 11(b): (i) Plaintiff alleges in the TAC without likelihood of evidentiary support that Countrywide made statements to her and asserts a meritless GBL claim; (ii) Plaintiff seeks to alter the allegations about the nature of the promised loan without evidentiary support; (iii) Katz deliberately distorts the clear words of the Good Faith Estimate in his motion to amend filings; (iv) Plaintiff seeks to falsely allege without evidentiary support that Countrywide brought Evolution
As noted in the discussion of Evolution and Watermark's purported agency relationship with Countrywide, Plaintiff alleges in the TAC that Countrywide made deceptive statements directly to her. (TAC ¶ 57(a), (b), (c), (j), (k), (n).) As proof that Katz failed to conduct a reasonable inquiry into Plaintiff's factual contentions, Countrywide identifies deposition testimony of Plaintiff and her husband where they admit they never had direct communications with Countrywide. (See Countrywide Rule 11 Ex. R, G. Hutter Dep. at 26:7-13.) Countrywide argues that Plaintiff knew and Katz knew or should have known before filing suit that Plaintiff had never had direct contact with Countrywide. Countrywide also notes that the PFAC still retains allegations that Countrywide communicated to Plaintiff.
Plaintiff counters that Countrywide's witness Jenkins admitted it sent Plaintiff a Good Faith Estimate. (Pl.'s Rule 11 Opp'n Ex. D, Jenkins Dep. at 39:17-25, 41:15.)
It appears the Jenkins deposition testimony may constitute evidentiary support for the contention that Countrywide had direct contact with Plaintiff, but only with respect to one allegation: "Countrywide, through [Plaintiff's] mortgage brokers..., promised her verbally and in pre-closing documents that the loan's interest rate would be 1.5% ...." (TAC ¶ 57(d).) Thus, the Court cannot find that the GBL claim against Countrywide was wholly unwarranted. Cf. Fed.R.Civ.P. 11(b)(2). Nonetheless, the testimony does not support Plaintiff's contentions that the bank "told [Plaintiff] that she could afford the monthly payments," TAC ¶ 57(a); cf. PFAC ¶ 57(a) (bank through its purported agents "convinced [Plaintiff] that she could afford the monthly payments"), that it "assured [Plaintiff] that refinancing would help her," TAC ¶ 57(b); accord id. ¶ 57(n), that it "told [Plaintiff] that an adjustable-rate loan was right for her," id. ¶ 57(c), or that it "assured her that housing prices would keep rising," id. ¶ 57(j). Thus, as Plaintiff and her husband testified that they had no contact with the bank, these allegations — which have existed in the operative complaint for years — were not likely
The original complaint, AC, SAC, and TAC allege that "the bank and the two mortgage brokers told Hutter that she could afford the monthly payments on a $1,875,000 monthly adjustable-rate Pay Option loan, when in actuality the payments were beyond her means," (see TAC ¶ 57(a)), and "the defendants told Hutter that an adjustable-rate loan was right for her," (see id. ¶ 57(c)). In support of Plaintiff's motion to amend, Katz wrote the following:
(Pl.'s Br. 7-8 (emphasis added).) In opposition to Countrywide's motion for Rule 11 sanctions, Katz wrote the following:
(Pl.'s Rule 11 Opp'n Br. 16-17 (emphasis added).)
The Court is baffled by Katz's inconsistent arguments in his motion filings — first asserting Plaintiff was never actually told an adjustable-rate mortgage was right for her, but subsequently arguing it was possible she was told such. Likewise, the new proposal that Plaintiff was promised a fixed interest rate all along directly contradicts the previous complaints, from which the obvious inference to be drawn is that Plaintiff was informed the loan would have a variable interest rate. Plaintiff's new affidavit, in which she contends she "did not discuss" whether she had "been offered a loan with a fixed or a variable-rate loan" prior to filing the original complaint or any subsequent complaint, (Doc. 156, Pl.'s Aff. of June 5, 2014 ¶ 7), and that "up until [her] deposition was held, [she] did not tell [her] attorney that [she] had been promised a fixed-rate loan," (id. ¶ 8), confirms that Katz failed to conduct a reasonable inquiry
As previously noted, the Good Faith Estimate upon which Plaintiff relies clearly states "MTA Option Arm" in the upper right-hand corner. Despite this, Katz asserts in his memorandum of law in support of the motion to amend that the Good Faith Estimate promised a 1.5% fixed interest rate. Countrywide takes issue with this characterization of the document. Katz now asserts that the phrase is "too cryptic to have notified [Plaintiff] that she was being offered an adjustable rate loan," (Pl.'s Rule 11 Opp'n 17), relying on Plaintiff's new affidavit, (Doc. 156, Pl.'s Aff. of June 5, 2014). Plaintiff, for her part, now avers she did not know what the term meant and believed from its placement on the page that it was "internal language intended for the broker referring to his commission." (Id. ¶ 13.) Plaintiff also avers that she was confused because the document did not capitalize all three letters of "Arm." (Id. ¶ 14.)
This last contention is problematic for Plaintiff, as she actually received multiple Good Faith Estimates, at least one of which capitalized "OPTION ARM" in its entirety. (Pl.'s Rule 11 Opp'n Exs. H, I.) Countrywide asserts — and the Court agrees — that because Plaintiff had previously taken out adjustable rate mortgages on her home, (see Doc. 12-5), her contention that she did not know ARM meant adjustable rate mortgage appears to be self-serving. More significantly, Katz's assertion that the Good Faith Estimate clearly indicated it was for a fixed rate loan, (see Pl.'s Countrywide Reply 17-18), is indicative of his failure to make diligent efforts to investigate the meaning of "Option Arm" either before bringing the action or before filing the motion to amend. His contention that the term is ambiguous and should be construed against the drafter is not only belatedly asserted, but is also meritless. Accordingly, the Court finds Plaintiff and Katz violated Rule 11(b)(3) in asserting the Good Faith Estimate promised a fixed-rate loan, a factual assertion without evidentiary support.
As previously mentioned, Katz submitted an affidavit from Plaintiff's husband in opposition to Defendants' motions to dismiss. (Doc. 20-3, G. Hutter Aff. of June 3, 2010.) At that time, Plaintiff's husband averred that "Matthews told me that his company was not licensed as a mortgage broker in New York State, so he would get a local mortgage broker to handle our loan. He did not mention Evolution Mortgage's name, but just said that he would have to hire a local broker." (Id. ¶ 7.) Katz subsequently submitted a second affidavit from Plaintiff's husband in support of Plaintiff's motion to amend the complaint. (Doc. 129, G. Hutter Aff. of Nov. 23, 2013.) There, Plaintiff's husband averred that "Matthews told me that because Watermark Capital was not licensed as a mortgage broker in New York State, Countrywide had arranged for the New York-licensed broker Evolution Mortgage Inc. to be the broker of record for Mrs. Hutter's Countrywide loan." (Id. ¶ 3.) Katz pointed to no evidence produced during discovery to support this contention. Countrywide identifies the above affidavits as contradictory and asserts Plaintiff's new contention is knowingly false. Countrywide also notes that Plaintiff's husband testified at deposition he had no idea Countrywide was in
In opposition to the Rule 11 motion for sanctions, Katz submits a third affidavit from Plaintiff's husband. (Doc. 157, G. Hutter Aff. of June 5, 2014.) There, Plaintiff's husband avers that "[a]t one point, Matthews told me that he would have to locate a mortgage broker `from your neck of the woods' who was licensed in New York State `to close this deal['] (the Mortgage), because the broker he worked for[,] Watermark Capital, which had been processing my wife's loan, was not licensed in New York." (Id. ¶ 3.) Plaintiff's husband continues, saying that "[l]ater, Matthews told me that `we asked Countrywide Bank to locate one of their local Brokers in New York to close that deal for us.' They `found' mortgage broker Evolution Mortgage...." (Id. ¶ 4.) Katz argues that Sciacca and Dragna's accounts of how they met in Florida are "evasive" and lack detail, including Dragna's "inaccurate physical description" of Sciacca, whereas Plaintiff saw Sciacca at deposition and affirms he is 5'10" tall and does not have white hair. (Pl.'s Rule 11 Opp'n Br. 23.)
The first two affidavits of Plaintiff's husband are obviously in conflict with each other. The belated effort to harmonize them is evidence of Katz's failure to conduct a reasonable inquiry to determine what Matthews actually said to Plaintiff's husband before submitting the first affidavit opposing the motions to dismiss. Accordingly, these submissions demonstrate a Rule 11(b)(3) violation. Moreover, even if the third affidavit is accurate, Plaintiff's effort to assert the Banking Law claim against Countrywide was not a legitimate attempt to extend the reach of the law and thus violated Rule 11(b)(2). As mentioned above, the statutory language of the Banking Law provision is clear. A private right of action under § 598 is limited to recovery of liquidated damages against a bank "for breach of contract or agreement to make a mortgage loan," N.Y. Banking Law § 598(3), or recovery from a "non-exempt unlicensed or unregistered person or entity" which brokered a loan, id. § 598(5). Neither of these situations is present. Katz's assertion that Plaintiff may assert a right of action pursuant to § 598 on the basis that other courts have read implicit rights of action into statutes lacks legal support. Katz cites to no legal authority to support his contention.
Countrywide asserts that Katz violated Rule 11 by propounding inconsistent theories concerning Plaintiff's purported incapacity in the motion to amend and in the reply brief. Specifically, the initial moving papers indicate that Plaintiff did not understand what happened at the closing, (Pl.'s Br. 13), while the PFAC alleges her "medical condition and incapacity rendered her incapable of contracting," (PFAC ¶ 10(c)), and seeks to void the loan, (id. Request for Damages ¶ b (first of two)).
The above inconsistencies do not demonstrate a failure to investigate facts. Fed. R.Civ.P. 11(b)(3). They do, however, evince frivolous legal contentions, since (a) the PFAC clearly adds a new claim which is barred by the statute of limitations, and (b) the contention that Defendants' behavior constitutes a deceptive act is not a valid attempt to extend the reach of GBL § 349. It is untenable to assert that a bank's insistence on the borrower attending the loan closing constitutes a misleading action.
In opposition to the § 1927 motion for sanctions, Plaintiff explained that the PFAC amendments would strengthen her case and were thus not futile. In particular, Plaintiff asserted that "the defendants insisted that [she] close on her Countrywide loan when they knew that she was badly injured." (Pl.'s § 1927 Opp'n 15.) For support, Plaintiff cited an unpublished state court case which states: "Fraud in the execution ... arises where a party did not know the nature or the contents of the document being signed, or the consequences of signing it, and was nonetheless misled into doing so." Presvelis v. Forella, No. 15521/05, 2008 N.Y. Misc. LEXIS 9585, at *26, 2008 WL 2481825 (Sup.Ct. Queens Cnty. Mar. 14, 2008) (citations omitted). Countrywide contends that Katz either sought to add a new claim or desired to launch an improper attack on it. Countrywide also notes that the Court previously dismissed Plaintiff's fraudulent inducement claim and refused to allow her to plead fraud in the factum in the SAC. (Hr'g Tr. of Mar. 10, 2011 (Seibel, J.) at 32:11-33:14; see also Doc. 39, Order of May 23, 2011 (Seibel, J.) ¶ 3, at 3.)
Katz defends his citation of the "fraud in the execution" case by stating it supported Plaintiff's attempt to add to her GBL claim that she was mentally incapacitated when Countrywide "made her close" on December 11, 2006. (Pl.'s Rule 11 Opp'n 25.) Katz asserts that a GBL deceptive practices claim shares certain characteristics with breach of contract and fraud claims because it involves contracts and misrepresentations, and thus he cited cases dealing with contracts and fraud. As explained above, his effort to extend the reach of GBL § 349 is frivolous and violates Rule 11(b)(2). However, this "fraud in the execution" violation may be subsumed in the previous discussion of Plaintiff's incapacity.
Plaintiff alleged previously that she "hired Watermark Capital and Evolution Mortgage as her agents to obtain a loan to refinance her ... home," (Doc. 7, AC ¶ 80), and that "Watermark Capital and Evolution Mortgage were agents of [Plaintiff] by
In opposition to the Rule 11 motion, Katz explains he removed the allegation that the Brokers were Plaintiff's agents because in 2010 the Brokers produced a mortgage loan origination agreement apparently signed by Plaintiff which states they were not Plaintiff's agents. The existence of this contract demonstrates Katz conducted some inquiry in formulating the original agency assertion. Since that agreement was produced, however, Plaintiff has maintained that her signature on the document was forged. Her forgery contention is inconsistent with the AC's allegation that the Brokers were her agents "by contract," (AC ¶ 81), as she disavows all but the oral communications between Matthews and her husband. Nonetheless, the Court hesitates to find that the Brokers-as-Plaintiffs-agents contention was not likely to have evidentiary support when the AC was filed.
As to the characterization of Plaintiff's reliance on the Brokers' purported offer of a 1.5% fixed rate, Plaintiff continues to assert that the Brokers were Countrywide's agents. In so doing, Katz cites to additional evidence not previously identified in connection with Plaintiff's motion to amend. Katz also proffers arguments not previously made, namely, that Countrywide exercised control over the Brokers. His arguments lack support and are merely conclusory, as the provisions he cites in the Wholesale Broker Agreements merely set forth the Brokers' contractual obligations. (See Pl.'s Rule 11 Ex. C.) However, this renewed effort to argue agency, though improper, is not necessarily unwarranted by existing law; nor is the previous effort to argue agency by estoppel, though the legal theory was misapplied. Accordingly, the Court cannot find a violation of Rule 11(b)(2). Plaintiff's mischaracterization of the documentary evidence has previously been discussed.
The imposition of sanctions for Rule 11 violations is discretionary. Any imposed sanction "must be limited to what suffices to deter repetition of the conduct or comparable conduct by others similarly situated." Fed.R.Civ.P. 11(c)(4). Possible sanctions include "nonmonetary directives; an order to pay a penalty into court; or, if imposed on motion and warranted for effective deterrence, an order directing payment to the movant of part or all of the reasonable attorney's fees and other expenses directly resulting from the violation." Id. Nonmonetary directives may include "striking the offending paper; issuing an admonition, reprimand, or censure;
Ho Myung Moolsan Co. v. Manitou Mineral Water, Inc., 665 F.Supp.2d 239, 265 (S.D.N.Y.2009); accord Fed.R.Civ.P. 11, Advisory Committee Note to 1993 Amendments (stating that courts should additionally consider whether there was intent to injure the opponent).
Countrywide asserts that Plaintiff and Katz willfully filed numerous complaints based on facts they knew would not be substantiated, and that such filings constitute a pattern. It asserts that Plaintiff's misstatements infected the entire pleading because most violations were committed in support of the GBL claim, which is purportedly "at the heart" of the action and "presents the greatest potential damages award." (Countrywide Rule 11 Br. 17.) Countrywide states Plaintiff's intent to injure is evinced by her flip-flopping and overreaching damages claims. It asserts further that Plaintiff's false allegations have profoundly affected the time and expense required to prosecute the action. Countrywide finally notes that Plaintiff was recently sanctioned in a state court action, involving a similar loan from another bank, for failure to withdraw frivolous claims before causing Watermark and Joutz to file a motion for summary judgment. (Countrywide Rule 11 Reply Ex. BB, Decision & Order (Westchester Cnty. Sup.Ct. June 4, 2014).) According to Countrywide, dismissal is the only means of ensuring Plaintiff and Katz discontinue their pattern of improper conduct. Countrywide also seeks attorneys' fees for the entire litigation against both, or alternatively fees from March 10, 2011, when Judge Seibel purportedly would have dismissed the GBL claim but for Plaintiff alleging direct contact between herself and Countrywide.
Plaintiff's only pertinent argument against the imposition of sanctions, where a violation is found, is that Rule 11 is meant to deter misconduct, not to compensate the opposing party for its legal fees. See also Fed.R.Civ.P. 11, Advisory Committee Note to 1993 Amendments, Subdivs. (b) & (c) ("Since the purpose of Rule 11 sanctions is to deter rather than to compensate,... if a monetary sanction is imposed, it should ordinarily be paid into court as a penalty.").
The Court finds that Plaintiff and Katz acted willfully; that their conduct appears to fit a pattern; that their conduct infected only two of the claims, namely, the GBL and Banking Law claims; that their conduct added unnecessary time and expense to the litigation process; and that one of the responsible people is trained in the law. Dismissal of the action, however, is an extreme sanction which is not warranted at this juncture. Nonetheless, the Court finds an award of reasonable attorneys' fees incurred in opposing Plaintiff's predominantly frivolous motion to amend the complaint, as against Katz, is warranted. Additionally, an order directing Plaintiff
For the stated reasons, Plaintiff's motion to amend the complaint is DENIED in its entirety. Countrywide's motion for sanctions pursuant to 28 U.S.C. § 1927 is DENIED. Countrywide's motion for sanctions pursuant to Rule 11 is GRANTED to the extent of (a) requiring Plaintiff's attorney to compensate Countrywide for reasonable attorneys' fees incurred to oppose Plaintiff's motion to amend, and (b) ordering Plaintiff to pay a penalty into Court in the amount of $100.00. Plaintiff and Countrywide shall appear before the Court on October 7, 2014, at 11:00 a.m. for a hearing to determine the amount of reasonable attorneys' fees to be awarded, unless the parties can agree on a reasonable amount. Any letters requesting a pre-motion conference in contemplation of filing motions for summary judgment shall be submitted no later than October 31, 2014. The Clerk of Court is respectfully requested to terminate the motions (Docs. 115, 127, & 150).
SO ORDERED.
(Pl.'s Rule 11 Opp'n 25-26.) This contention is rejected in the following "fraud in the execution" discussion.
