Professional Documents
Culture Documents
83 Memorandum of Law
83 Memorandum of Law
v.
JPMORGAN CHASE BANK, N.A., CHASE
HOME FINANCE, LLC, and JPMORGAN
CHASE & CO.,
Defendants.
CHAITMAN LLP
Helen Davis Chaitman
Lance Gotthoffer
Suzan Arden
465 Park Avenue
New York, New York 10022
Phone & Fax: 888-759-1114
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TABLE OF CONTENTS
Page
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TABLE OF AUTHORITIES
Page(s)
Cases
Ashcroft v. Iqbal,
556 U.S. 662 (2009) ................................................................................................................................. 8, 9
Barker v. Amorini,
2014 WL 7665566 (App. Div. 2014) ...................................................................................................... 21
Barker v. Amorini,
995 N.Y.S.2d 89 (App. Div. 2014) ......................................................................................................... 21
Blue Tree Hotels Inv. (Canada), Ltd. v. Starwood Hotels & Resorts Worldwide, Inc.,
369 F.3d 212 (2d Cir. 2004) ..................................................................................................................... 13
Caballero v. Anselmo,
759 F.Supp. 144 (S.D.N.Y.1991) ............................................................................................................ 20
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Goldberger v. Rudnicki,
944 N.Y.S.2d 157 (App. Div. 2012) ....................................................................................................... 22
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McLaughlin v. Anderson,
962 F.2d 187 (2d Cir. 1992) ..................................................................................................................... 13
Newbro v. Freed,
409 F. Supp. 2d 386 (S.D.N.Y. 2006) aff’d,- No. 06-1722-CV, 2007 WL 642941
(2d Cir. Feb. 27, 2007) .............................................................................................................................. 22
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Roth v. Jennings,
489 F.3d 499 (2d Cir.2007) ........................................................................................................................ 8
Stewart v. Maitland,
835 N.Y.S.2d 39 (App. Div. 2007) ......................................................................................................... 18
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Statutes
Other Authorities
Wright & Miller, 5C Fed. Prac. & Proc. Civ. § 1363 (3d ed.) ...................................................................... 9
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Plaintiffs S&A Capital Partners, Inc. (“S&A”), Mortgage Resolution Servicing, LLC (“MRS”)
and 1st Fidelity Loan Servicing, LLC (“1st Fidelity”), submit this memorandum of law in opposition
to the motion of Defendants JPMorgan Chase Bank, N.A., JPMorgan Chase & Company, and Chase
Home Finance LLC (collectively, “Chase” or “Defendants”), to dismiss counts four through nine of
PRELIMINARY STATEMENT
Plaintiffs purchased thousands of defaulted residential mortgage loans from Chase with the
goal of working out payment plans with the borrowers to enable them to remain in their homes. (TAC
¶¶ 12, 13). Plaintiffs have asserted, in the first three counts of the Complaint, claims for breach of
contract, which Chase has not moved to dismiss. However, the facts alleged in the Complaint
constitute far more than simply a breach of contract. Chase obligated itself to provide $8 billion of
consumer relief to homeowners under two separate settlement agreements with the government. As
part of its concerted scheme to cheat the government and the homeowners out of that consumer
relief, Chase engaged in a scheme to defraud that caused direct injury to the Plaintiffs.
Thus, the Complaint sets forth valid claims for Conversion (Count Four), Tortious
Interference (Count Five), Fraud (Count Six), Negligent Misrepresentation (Count Seven), Slander of
Title (Count Eight), and civil RICO (Count Nine). With regard to the common law tort claims, Chase
argues that the claims are duplicative of the contract claims. However, New York law does not shield
a party from tort liability simply because there is a contract in existence between the parties. Where a
defendant’s conduct is so egregious as to be outside the contemplation of the contract, New York
With regard to the RICO claim, Defendants’ argument for dismissal ignores the Supreme
Court’s holding in Boyle v. United States, 556 U.S. 938, 948 (2009), that plaintiffs do not have to plead
facts to show the intricate hierarchy, structure and activities of a RICO enterprise. Such an enterprise
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can indeed exist, as alleged here, where third party vendors “assist” Defendants in their criminal
scheme. It is not necessary that the common purpose of a RICO enterprise be an improper one,
although, in this case, we can show that the common purpose was improper. Moreover, Defendants’
wrongful acts both predate their obligations under the settlements with the government in 2012 and
2013 and post-date the settlements, as demonstrated by illegal lien releases recorded as late as October
For the reasons set forth herein, Defendants’ motion to dismiss should be denied in its
entirety.
Plaintiffs have pled that the Defendants, together with certain debt collection agencies, the
outside services that sent out thousands of debt forgiveness letters, and the persons and entities that
released liens on collateral that Chase had previously sold to the Plaintiffs, formed an enterprise as set
forth in 16 U.S.C. § 1962(c) (TAC ¶ 208).1 Defendants’ purpose, through control of the enterprise,
was to dump massive liabilities onto the Plaintiffs so that Defendants could not only be relieved of
liability for urban blight but also so that Defendants could fulfill (fraudulently) their obligations to the
government under the terms of the NMSA Consent Judgment and the RMBS Settlement which
required Chase to provide $8.2 billion of consumer relief. (TAC ¶¶ 206-07, 210).
The scheme included multiple predicate acts. The first predicate act occurred when Chase’s
head of loan recovery knowingly misrepresented to Plaintiffs in 2008 that Chase was selling “closed
end first lien residential mortgage loans” from which Defendants had decided to “walk away” based
on a cost benefit analysis (TAC ¶ 212 a) when, in fact, Chase had decided to dump massive liabilities
1 While by their very nature, some of the facts, including the identities of members of the enterprise, are known only to
the Defendants prior to discovery, the facts that are known to the Plaintiffs are set forth in the TAC and below.
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associated with the mortgage loans secured by homes in blighted urban areas onto the Plaintiffs. (TAC
¶ 212 a). Moreover, the majority of these loans were deficiency claims, not first lien mortgages. (TAC
¶¶ 212 a, 212 b). The scheme continued when Chase, using the assistance of numerous outside
vendors, mailed out thousands of letters to homeowners forgiving loans Chase had sold to the
Plaintiffs more than three years earlier and, beginning in September 2012, releasing vast numbers of
mortgage liens on properties on which the mortgages had been sold to Plaintiffs. This conduct has
S&A and 1st Fidelity respectively purchased 650 and 350 first and second lien mortgage loans
from Defendants between 2005 and 2010, none of which were unsecured loans or deficiencies. (TAC
¶¶ 13-15). Through September 2008, there were no significant problems with these purchases. (TAC
¶ 17). Pursuant to the Master Mortgage Loan Sales Agreement (“MMLSA”) between Chase as seller
and S&A as purchaser, Chase duly provided all of the original documentation for each purchased loan
and all of the files and records in its possession. (TAC ¶ 16).
In 2008, Chase represented to Plaintiffs that Chase wanted to sell a portfolio of first lien
residential mortgages, mostly in parts of the country hardest hit by the housing crisis which “the
highest levels of management” had made it an urgent priority to sell. In order to encourage plaintiffs
to purchase the loan package, Chase represented that it contained some “cherries”—valuable loans
that had been erroneously ‘charged off,’ removed from its primary System of Records and ported to
In October 2008 Chase sent Plaintiffs a preliminary data tape of the loan package, which was
grossly incomplete (TAC ¶ 22). This was followed by a second data tape in November 2008 (the
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“November 2008 Data Tape”), which contained approximately 5,785 mortgage loans with an
aggregate charge off balance of approximately $230 million, clearly identified the loans as first lien
mortgages, but still lacked information including certain borrower names and collateral addresses.
(TAC ¶ 24). In response to Plaintiffs’ inquiry, Chase represented that it had all of the missing
information from its recent acquisition of Washington Mutual, but had not yet converted the relevant
The “Cherries”
Plaintiffs’ due diligence revealed that the largest two loans on the November 2008 Data Tape,
belonging to Ali Sayed and Ricardo Salinas, were both in excess of $500,000, fully secured and located
in areas with houses valued over $1 million. (TAC ¶25). Chase represented that the loan sale had to
close before the end of the year so that Chase could “get the loans off its books”. (TAC ¶ 29). Despite
these “cherries,” in December 2008, Plaintiffs informed Defendants that they were not interested in
Chase then offered to sell the loans to Plaintiffs for only $200,000 (TAC ¶ 30). Plaintiffs
accepted this, based on their evaluation of the “cherries” on the November 2008 Data Tape, and
Plaintiffs sent a formal offer to purchase approximately $100 million of “impaired first lien mortgage
The MLPA
On February 4, 2009 Defendants finally provided Plaintiffs with the Mortgage Loan Purchase
Agreement (“MLPA”) for signature. It provided for the sale of 4,271 loans with an outstanding
balance of over $172 million (more than $72 million more than Defendants had previously
represented), but Defendants did not provide the list of loans being sold, to be drawn from the
November 2008 Data Tape, which was supposed to form Exhibit A to the MLPA. (TAC ¶ 35).
Plaintiffs requested a copy of the final data tape of the loans so it could be reviewed before signing
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the MLPA. Defendants represented that it would provide the final data tape after signature. (TAC ¶
36).
The fully-executed version of the MLPA which Defendants sent to Plaintiffs on February 25,
2009 provided for the sale of 3,529 “nonperforming and/or impaired closed end first lien mortgage
loans that are or have been delinquent for 180 days or more and have been or may otherwise be in
default” with an outstanding balance of a little over $156 million. (TAC ¶ 38). Defendants then sent
a data tape containing what purported to be Exhibit A (the “Corrupted List”). (TAC ¶¶ 39, 46).
Defendants made three key representations and warranties in the MLPA: (1) that the
information on the data tape—i.e. the Corrupted List—“is true and correct in all material respects as
of the date such data tape was compiled”; (2) that Defendants are the sole owner of the loans with
full authority to sell them; and (3) that each loan “complies in all material respects with all applicable
The warranties made by Chase were false at the time they were made, both before and in
connection with the MLPA. First, the Corrupted List, which Defendants did not even give to
Plaintiffs until after the MLPA was executed, did not include the basic information necessary to service
the loans. (TAC ¶ 46). Defendants represented that they would supplement the Corrupted List,
representing that the deficiency was due to the difficulty of converting Washington Mutual’s data to
Chase’s system when in fact the loans had not been originated by Washington Mutual and thus would
not be on Washington Mutual’s data system. (TAC ¶¶ 47-48). These deficiencies compelled
Defendants to spend considerable amounts of time and money to research the borrower identities
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Moreover, there were at least 685 duplications on the Corrupted List, with an approximate
value of $22 million, some of which duplications even showed differing amounts for the same loan.
(TAC ¶¶ 61-62). Even many of the unduplicated loans on the Corrupted List did not contain an
accurate principal balance, but instead showed the amount Defendants charged off. (TAC ¶ 64).
Contrary to the representation and warranty that Defendants owned the loans, the Corrupted
List contained loans it had previously sold to third parties and loans Defendants had never owned.
(TAC ¶ 60h). They belonged to various RMBS trusts with which Defendants had a servicing
relationship. Defendants included them in the sale to avoid “non-reimbursable advances and
The loans did not comply with nearly all applicable laws. (TAC ¶¶ 59-60). For example,
Defendants: (a) transferred the servicing of the loans to and from multiple unlicensed and unregulated
debt collection agencies; (b) provided them with false and misleading information; (c) failed to keep
proper records of escrow accounts; (d) stripped most of the origination documentation from the loan
files, including federal disclosures and good faith estimates, such that Plaintiffs could not respond to
borrower or regulatory inquiries; (e) failed to provide accurate borrower payment histories; and (f)
knowingly assigned mortgages that Defendants knew had already been foreclosed and sold to third
In addition to the multiple misrepresentations Defendants made prior to the parties’ execution
of the MLPA, Plaintiffs allege that Defendants subsequently breached the MLPA by, among other
things, (1) failing to provide MRS with assignments of the notes and mortgages for the loans (TAC ¶
65); (2) sending letters, either from Defendants themselves or from collection agencies,
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misrepresenting Defendants as owners of the loans and directing borrowers of some loans to make
payments to Defendants instead of MRS or its designees (TAC ¶ 68); (3) collecting payments from
insurance companies pursuant to title insurance claims related to the mortgage loans sold to MRS
(TAC ¶¶ 69-70); (4) “recalling” certain loans, including the “cherries” offered as an inducement for
Plaintiffs to purchase the loans, in direct violation of the MLPA (TAC ¶¶ 71-74); (5) contacting certain
borrowers and misrepresenting that Defendants had reacquired the loans and that the borrowers had
to pay Defendants, not MRS or its designees (TAC ¶ 85); (6) collecting and retaining payments on
certain of the loans (TAC ¶ 86); (7) changing loan numbers of certain performing loans (TAC ¶ 87).
agencies that MRS, not Chase, was responsible for the pre-sale conduct of Defendants regarding loans
that had been sold (TAC ¶ 88), and that MRS, not Chase, was responsible for violations regarding
The National Mortgage Settlement and Residential Mortgage Backed Securities Settlement
Plaintiffs have pled that Defendants were party to the National Mortgage Settlement
Agreement (“NMS”), reflected in a consent judgment (the “NMS Consent Judgment”) in settlement
of a complaint filed by the Federal Government, 49 states (all states except Oklahoma) and the District
of Columbia in 2012 against numerous banks and loan servicing companies regarding misconduct
related to their origination and servicing of single family residential mortgages (TAC ¶¶ 92-97).
The NMS Consent Judgment provided both federal and state releases to the financial
institutions in exchange for their promise, among other things, to adhere to certain specified servicing
standards and to provide consumer relief to borrowers. (TAC ¶ 97-99). Among other things,
Defendants were required to provide $4.2 billion of consumer relief to borrowers whose loans they
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In order to obtain consumer relief credit without any cost to Chase, beginning in September
2012, Defendants sent over 50,000 letters to borrowers forgiving their mortgage loans. However,
among these loans Defendants purportedly forgave thousands it did not own, including multiple loans
it had sold to the Plaintiffs. (TAC ¶¶ 102-08). To the extent Plaintiffs have evidence of such
forgiveness letters, Plaintiffs have listed them in exhibits to the TAC. However, Defendants have
refused to give Plaintiffs a complete list of the loans they forgave so that Plaintiffs can check it against
Plaintiffs have pled that Defendant JPMC entered into a $13 billion settlement with the
Department of Justice on November 19, 2013 (the “RMBS Settlement”) under the terms of which
JPMC agreed to pay $13 billion in return for complete civil immunity. (TAC ¶ 146). Pursuant to the
RMBS Settlement, these payments included $4 billion of consumer relief. Again, Defendants
wrongfully claimed credit for the full indebtedness owed by borrowers whose loans Defendants had
Plaintiffs allege that, starting in October 2013, Defendants released liens on thousands of
properties on which they had abandoned their servicing responsibilities in violation of legal
requirements. (TAC ¶ 134). These liens included loans owned by Plaintiffs (TAC ¶¶ 135-37, 140),
which caused Plaintiffs to lose revenue and also exposed them to litigation and regulatory action.
(TAC ¶¶ 141-43). The releases appear to have been robo-signed. (TAC ¶¶ 138, 144).
As set forth below, these facts provide more than sufficient basis for Plaintiff’s claims.
In deciding a motion to dismiss under Rule 12(b)(6), the court must accept the factual
allegations in the complaint as true and must draw all reasonable inferences in the plaintiff's favor.
Roth v. Jennings, 489 F.3d 499, 501 (2d Cir.2007); see also Ashcroft v. Iqbal, 556 U.S. 662 (2009). “When
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deciding a motion raising any of the enumerated Rule 12(b) defenses, the pleading will be read as a
whole, and will be viewed broadly and liberally in conformity with the mandate in Rule 8(f) that
pleadings be construed ‘to do substantial justice.’ Wright & Miller, 5C Fed. Prac. & Proc. Civ. § 1363
(3d ed.)
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted
as true, to ‘state a claim to relief that is plausible on its face.’ “Iqbal, 556 U.S. at 678 (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Id. at 678. As demonstrated below, the Complaint meets these standards in
all respects and this Court should deny Defendants’ motion to dismiss in its entirety.
ARGUMENT
POINT I
In order to state a civil RICO claim, a plaintiff must plead four elements: “(1) conduct (2) of
an enterprise (3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., Inc., 473
U.S. 479, 496 (1985). Defendants argue that the TAC fails to allege a RICO enterprise because it does
not demonstrate a ‘hierarchy, organization, and activities’ (Def. Mem. at 8), and because it does not
demonstrate sufficient continuity to form a “pattern” of racketeering activity. As set forth below,
Defendants are wrong. They have ignored Supreme Court precedent directly on point.
In Boyle v. United States, 556 U.S. 938, 948 (2009), the Supreme Court revisited its analysis, in
United States v. Turkette, 452 U.S. 576 (1981), of what constitutes an ‘enterprise’ for the purposes of
RICO, terming it as "a continuing unit that functions with a common purpose.” Relying on case law
decided well before Boyle, Defendants argue that a RICO complaint must still allege facts sufficient to
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demonstrate “hierarchy, organization, and activities.” Def. Mem. at 8, citing First Capital Asset Mgmt.,
Inc. v. Satinwood, Inc. , 385 F.3d 159, 174 (2d Cir. 2004)2. This is simply not the law. In Boyle, the
Supreme Court rejected the notion that a RICO enterprise requires a hierarchy, a chain of command,
fixed roles, regular meetings, or rules and regulations. Id. Instead, the Court held that an association-
in-fact enterprise only needs three structural features: (1) "a purpose," (2) "relationships among those
associated with the enterprise," and (3) "longevity sufficient to permit these associates to pursue the
As courts in the Second Circuit have interpreted Boyle, it “establishes a low threshold for
pleading such an enterprise.” Alkhatib v. New York Motor Group, LLC, 2015 WL 3507340 at *9
(E.D.N.Y. Jun. 3, 2015); Delgado v. Ocwen Loan Servicing, LLC, No. 13-CV-4427 NGG RML, 2014 WL
4773991, at *16 (E.D.N.Y. Sept. 24, 2014) (holding that under Boyle, “formal hierarchy, role
The TAC alleges more than sufficient facts to show the existence of a RICO enterprise. It
refers to the Defendants, their officers, and external entities including debt collection agencies, the
outside services that sent out thousands of debt forgiveness letters, and the persons and entities that
released liens on collateral that had been transferred to the Plaintiffs and others. (TAC ¶ 204).
Defendants’ contention that they are not identified by name is unavailing. (Def. Mem. at 8). Some of
Defendants’ employees are named, such as the late Eddie Guerrero, Patrick Boyle and Omar Kassem,
(see e.g. TAC ¶¶ 18, 104, 116), and at least one lien releasing entity, NTC, is identified in Exh.12 to the
TAC.3
2 Even before the Supreme Court decided Boyle, courts in the Southern District of New York had questioned the validity
of Satinwood in light of other Second Circuit precedent. See, e.g. Judge Koetl’s discussion in JSC Foreign Econ. Ass'n
Technostroyexport v. Weiss, No. 06 CIV. 6095 (JGK), 2007 WL 1159637, at *9 (S.D.N.Y. Apr. 18, 2007).
3 Documents attached to the Complaint are properly considered as part of the pleadings in opposition to a motion to
dismiss. Fed. R. Civ. P. 10(c) (“A copy of a written instrument that is an exhibit to a pleading is part of the pleading for
all purposes.”). So too are those documents referred to and relied upon in the complaint, even if not attached. See Int'l
Audiotext Network v. AT&T Co., 62 F.3d 69, 72 (2d. Cir. 1995); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d
Cir. 1991); Doehla v. Wathne Ltd., Inc., No 98 Civ. 6087 CSH, 1999 WL 566311, *3 (S.D.N.Y. 1999).
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Defendants’ claim that Plaintiffs have not shown a “common purpose” (Def. Mem. at 9-10)
is also misplaced. The purpose of the enterprise may be to carry out a legitimate goal, with the
enterprise need not be illegitimate or illegal, and the enterprise itself (or the members of an associated-
in-fact enterprise) need not commit any of the racketeering acts at all. Indeed, the enterprise frequently
is itself a victim of the racketeering activity perpetrated by its participants.” Chevron Corp. v. Donziger,
974 F. Supp.2d 362, 575-76 (S.D.N.Y. 2014) (holding that a litigation team whose goal was to pursue
the recovery of money from Chevron via litigation, whether by settlement or by enforceable judgment,
coupled with the exertion of pressure on Chevron to pay, constituted an enterprise even though there
was no suggestion that all of them committed acts of racketeering or even acted inappropriately in any
way). Even the court in Satinwood acknowledged that “an enterprise may be found where there is
simply a discrete economic association existing separately from the racketeering activity.” Satinwood,
Moreover, Defendants are wrong to assert that vendors and their customers cannot constitute
a RICO enterprise because they do not share such “a common purpose.” (Def. Mem. at 10). The
court in Fuji Photo Film U.S.A., Inc. v. McNulty, 640 F. Supp. 2d 300 (S.D.N.Y. 2009), found that Fuji
had properly pled an enterprise consisting of an individual and the vendors that he caused Fuji’s
Computer Products Division to retain. Fuji, 640 F. Supp.2d at 314 (main defendant “exercised
authority and control over the CPD,” retained “outside vendors, most of which were single-person
entities owned and operated by McNulty's wife and friends,” and this “association-in-fact was united
In an analogous situation, the court in Young v. Wells Fargo & Co., 671 F. Supp. 2d 1006, 1028
(S.D. Iowa 2009), held that the plaintiff had properly pled a RICO enterprise where it alleged that
Wells Fargo had an “association-in-fact business arrangement” with certain property inspection
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vendors, the property inspectors conducted a “drive by” inspection, and then, through its computer
system, Wells Fargo charged the Plaintiffs and others a grossly inflated fee. The vendors simply
conducted the inspections that Wells Fargo had ordered. At a minimum, the allegations here allege a
similar enterprise.
AThe
.TAC
- -Satisfies
--- RICO’s
--- Continuity
- - -Requirement
----
A RICO pattern is established by showing that the Defendants committed predicate acts that
“amount to or pose a threat of continued criminal activity.” H.J., Inc. v. Northwestern Bell Tel. Co., 492
U.S. 229, 239 (1989). The element of continuity may be satisfied by a showing of either “open ended
continuity” or “closed ended continuity.” H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 241–42
(1989); SKS Constructors, Inc. v. Drinkwine, 458 F. Supp.2d 68, 77 (E.D.N.Y. 2006).
Plaintiffs’ RICO cause of action articulates multiple predicate acts of mail and wire fraud, the
earliest dating from September 2008, when Defendants’ head of loan recovery knowingly
misrepresented to Plaintiffs that Chase was selling “closed end first lien residential mortgage loans”
from which Defendants had decided to “walk away” based on a cost benefit analysis (TAC ¶ 212a)
when they really intended to dump massive liabilities associated with the loans on Plaintiffs. (TAC ¶
212a). The latest predicate act specifically pled took place in December 2013, when Defendants
arranged for the recording of a lien release associated with a loan it had sold to Plaintiffs over three
Defendants claim that Plaintiffs have not pled open-ended continuity both because the TAC
failed to allege any predicate acts occurring after 2013 (Def. Mem. at 12) and because Defendants’
settlement obligations under the RMBS and NMBS Settlement eventually end (Def. Mem. at 11). This
is untrue. Plaintiffs allege that “Defendants used the mails and the wires to implement the Pre DoJ
Lien Release Project which they knew included the release of liens they did not own.” (TAC ¶212i).
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This allegation does not include a specific date and, indeed, Defendants continued to release liens on
loans they had sold to Plaintiffs at least as late as September and October 2014. (See Chaitman Decl.
Exhs. 1 and 2 respectively, lien release for loan 10001410011493929 dated September 10, 2014, and
lien release for loan 00173080008, dated October 3, 20144). These loans appear on the lists of loans
sold to S&A Capital and 1st Fidelity and attached to the TAC as Exhibits 1 and 2 respectively (See
Defendants’ contention that this constitutes neither open-ended nor closed-ended continuity
necessarily overlooks the facts, pled as part of the scheme, that demonstrate that Defendants first had
to induce Plaintiffs to buy the loans before they could dump their liabilities or convince the
government that they were legitimately complying with their consumer relief obligations. Defendants
cannot disregard these predicate acts simply by designating them as “unrelated” (Def. Mem. at 13) and
saying that they “could not have been done in furtherance of a scheme to evade Chase’s settlement
None of the cases cited by Defendants provide a basis for dismissing Plaintiffs’ claims. In
McLaughlin v. Anderson, 962 F.2d 187, 191 (2d Cir. 1992), which Defendants cite for the proposition
that “unrelated” predicate acts should be disregarded, the court held the acts there to be unrelated
merely because they “have conflicting goals.” The court held that since the purpose of the scheme
was to assist one party in “monopolizing the HUD market in Hartford,” allegations that the
defendants had also sought to induce a competitor to acquire a project were conflicting and could not
4 Blue Tree Hotels Inv. (Canada), Ltd. v. Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 217 (2d Cir. 2004) (“we may
also look to public records, including complaints filed in state court, in deciding a motion to dismiss”); Pani v. Empire Blue
Cross Blue Shield, 152 F.3d 67, 75 (2d Cir.1998) (“It is well established that a district court may rely on matters of public
record in deciding a motion to dismiss under Rule 12(b)(6) ....”). Thus, the Court may properly take judicial notice of the
releases, recorded and publicly available documents, without converting this motion into one for summary judgment.
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be predicate acts. Similarly, in Schlaifer Nance & Co. v. Estate of Warhol, 119 F.3d 91, 97 (2d Cir. 1997),
the court held certain of the acts to be unrelated because the goals conflicted: “The goal of Scheme B
was to induce SNC into the contract, while the goal of the other schemes was to force SNC out of
the agreement.” Finally, in Ray Larsen Assocs., Inc. v. Nikko Am., Inc., 1996 WL 442799 at *7 (S.D.N.Y.
Aug. 6, 1996), the only connection between the challenged predicate acts was that each would “have
Here, there is no conflict between the goals of any of the alleged predicate acts: They were all
undertaken by the Defendants so that they could enrich themselves at the expense of the Plaintiffs,
the homeowners who were the intended beneficiaries of the government settlements, and the
POINT II
Where a party to a contract commits crimes which victimize the other party to the contract,
New York law provides a remedy beyond a claim for breach of contract.
It simply cannot be the case that any statement, no matter how false or
fraudulent or pivotal, may be absolved of its tortious impact simply by
incorporating it verbatim into a contract.
MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 928 N.Y.S.2d 229, 234 (App. Div. 2011), quoting In re
CINAR Corp. Sec. Litig., 186 F. Supp.2d 279, 303 (E.D.N.Y. 2002). In their pinched, narrow reading
of the TAC, Defendants would have this Court immunize them from liability in tort for their criminal
conduct in dumping massive liabilities on Plaintiffs in the form of loans Defendants falsely represented
to have been handled in full accordance with the law. Contrary to Defendants’ argument, the tort
claims are not duplicative of the contract claims. Defendants argue that the only things Plaintiffs have
pled is that “the loans that Chase delivered under the contract failed to meet the quality standards
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supposedly set forth in the contract” (Def. Mem. at 2) and that Defendants breached “a handful” of
contracts by sending improper debt forgiveness letters and filing improper lien releases. Id.
The law does not insulate Defendants from tort liability merely because some of their conduct
can also be seen as a breach of warranty. Further, Defendants place undue reliance upon Magistrate
Judge Francis’s decision denying their motion to transfer this case when they claim he recognized that
Plaintiffs’ tort claims are duplicative because they “all arise from Plaintiffs’ debt-purchase contracts
with Chase” (Def. Mem. at 14). The Court did not say that. Instead, the decision refers to tort claims
that “arise from the business relationship created by the MLPA” (Decision at 9; emphasis added) or that
“stem from [Plaintiffs’] purchase of mortgage loans” (Decision at 2; emphasis added). Similarly, the
Decision cites to case law clearly referring to valid tort claims that arise “in relation to the contract”
or arise out of the business relationship. See, e.g. Montoya v. Cousins Chanos Casino, LLC, No. 651353/11,
2012 WL 118475 (Sup.Ct. N.Y. Cty. Jan 12, 2012) at *5. Here, the tort claims certainly arise out of
the relationship between the parties established by contract and by definition, Defendants could not
have committed them had there not been a business relationship, but as set forth below, they are not
AMRS
.- Has
-Properly
- - -Pled
-- Claims
- -Of-Fraud,
--
Fraudulent Inducement and Negligent Misrepresentation
MRS has alleged, among other things, that Defendants fraudulently induced it to enter into
the MLPA in part by including certain warranties in the contract. (E.g., TAC ¶¶ 43, 178). Defendants’
erroneous contention that they are insulated from liability for fraud, fraudulent inducement and
negligent misrepresentation (the Sixth and Seventh Claims for Relief, TAC ¶¶ 176-192) because they
also breached these warranties, grossly mischaracterizes both Plaintiffs’ claims and New York law.
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GoSmile, Inc. v. Levine, 915 N.Y.S.2d 521, 524 (App. Div. 2010), lv. dismissed, 952 N.E.2d 1077 (N.Y.
2011). See also Deerfield Communications Corp. v. Chesebrough-Ponds, Inc., 502 N.E.2d 1003, 1004 (N.Y.
1986) (affirming refusal to dismiss fraud claim where the defendant allegedly had no intention of
restricting itself to selling goods pursuant to a contract in a specific geographical area). Where there is
also a breach of contract claim, the misrepresentation of present fact must be “collateral to the
contract.” Wyle, Inc. v. ITT Corp., 13 N.Y.S.3d 375, 376 (App. Div. 2015), quoting Credit Alliance v. Hable
A contractual warranty, however, “is not a promise of performance, but a statement of present
fact. Accordingly, a fraud claim can be based on a breach of contractual warranties notwithstanding
the existence of a breach of contract claim.” Wyle, Inc., 13 N.Y.S.3d at 378, quoting First Bank of Ams.
In First Bank, the plaintiff had purchased loans made on used cars from the defendant. The
agreement contained warranties that the loans would comply with underwriting guidelines. The
plaintiff alleged that the defendant had misrepresented the quality of the loans, which induced it to
buy less valuable loans, resulting in loss. The Appellate Division for the First Department sustained
the fraudulent inducement claims as well as those of breach of contract, on the grounds that the
defendant had allegedly “misrepresented material facts about various individual loans so that they
would appear to satisfy” warranties in the contract. First Bank, 690 N.Y.S.2d at 21.
Similarly, in MBIA Ins. Corp. 928 N.Y.S.2d at 232, plaintiff alleged that Countrywide
committed fraud and breached certain contracts in connection with the securitization of pools of
residential mortgages. In order to make the pools of mortgages more marketable, Countrywide
engaged the plaintiff to provide financial guarantee insurance. In so doing, however, Countrywide
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misrepresented the quality of the loans. The court affirmed the denial of a motion to dismiss the fraud
claims as duplicative because the plaintiff had pled, among other things, that Countrywide had
falsely represented that the loans were made in strict compliance with its
underwriting standards and guidelines, as well as industry standards. In fact, MBIA
claims, Countrywide abandoned those guidelines by knowingly lending to borrowers
who could not afford to repay the loans, or who committed fraud in loan
applications or whose applications could not satisfy basic criteria for responsible
lending.
This is very similar to what Plaintiffs have alleged here. As set forth above, Defendants made
three key representations and warranties in the MLPA: (1) that the information on the data tape—i.e.,
the Corrupted List—“is true and correct in all material respects as of the date such data tape was
compiled”; (2) that Defendants are the sole owner of the loans with full authority to sell them; and (3)
that each loan “complies in all material respects with all applicable . . . laws” (TAC ¶ 43, TAC Exhibit
3 §6). Plaintiffs have also alleged, in considerable detail, that these representations were false: that the
Corrupted List was far from true and correct (TAC ¶¶ 46-48); that other entities, not Defendants,
owned some of the loans (TAC ¶¶ 55-56) and that the loans did not, in fact, comply with applicable
Further, and completely missing from the terms of the MLPA, are Defendants’
misrepresentations that the details of the loans in question could not be provided because Defendants
were having difficulty in transferring information from Washington Mutual’s data to its own when, in
fact, the loans had not even been originated by Washington Mutual. (TAC ¶¶ 47-48).
Defendants’ cases are not to the contrary. RGH Liquidating Trust v. Deloitte & Touche LLP, 851
N.Y.S.2d 31, 32-33 (App. Div. 2008), defendant Deloitte had contracted with plaintiffs to audit their
because those claims “related to defendants' obligation under their agreements . . . to conduct audits
of financial statements with due care.” Here, as set forth above, MRS’ allegations of fraud include
{00011961 3 } 17
Case 1:15-cv-00293-LTS-RWL Document 83 Filed 12/07/15 Page 26 of 33
misrepresentations entirely unconnected to the manner in which Defendants were bound to carry out
their obligations under the MLPA. In Defendants’ other cases, the alleged fraud directly related to a
concealed intent not to perform as promised, which is not what is alleged here. Stewart v. Maitland,
835 N.Y.S.2d 39, 40 (App. Div. 2007) (“no factual basis for recovery other than defendants' failure to
keep promises”); Telecom Int’l Am. Ltd. v. AT&T Corp., 280 F.3d 175, 196 (2d Cir. 2001) (no fraud
where the facts show that the Defendant intended to keep its promises when made);
Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 19 (2d Cir. 1996) (duplicative fraud
claim premised on allegedly false statements to plaintiff that defendant intended to pay it all monies
Moreover, in one case cited by Defendants, Four Finger Art Factory, Inc. v. Dinicola, No. 99 CIV.
1259 (JGK), 2000 WL 145466, at *4 (S.D.N.Y. Feb. 9, 2000), the court noted that New York’s Court
of Appeals considers that “engag[ing] in conduct outside the contract but intended to defeat the
contract,” is also an “example[ ] of conduct which is sufficiently collateral to state a proper claim in
tort.” citing New York University v. Continental Ins. Co., 87 N.Y.2d 308, 316 (1995); Deerfield, 68 N.Y.2d at
956 (“a promise . . . made with a preconceived and undisclosed intention of not performing it . . .
Plaintiffs have certainly pled fraud claims distinct from their breach of contract claims and,
as such, Defendants’ motion to dismiss the sixth and seventh claims must be denied.
Finally, this Court should disregard Defendants’ desire to apply the “ancient rule of caveat
emptor” here to defeat MRS’ claims of negligent misrepresentation or omission. (Def. Mem. at 22).
Defendants argue that they had no obligation to disclose their intentions to dump massive liabilities
on MRS (TAC ¶ 180), or that the servicing of the loans had violated the law (TAC ¶ 179), or, indeed,
not to misrepresent that they were in the process of compiling a complete Exhibit A (TAC ¶ 181)
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because they did not have a fiduciary duty or special, privity-like relationship with MRS. (Def. Mem.
at 22). First, this is not a basis for dismissal of Plaintiffs’ fraud claims because each of Defendants’
notable omissions as pled in the TAC was also accompanied by affirmative and fraudulent
misrepresentations of the same subject matter. For example, Defendants’ concealment of their
intention to dump massive liabilities on Plaintiffs and of the fact that the loans all violated the law is
simply the flipside of Defendants’ affirmative and fraudulent representations that the loans all
Second, courts in the Second Circuit generally consider the question whether there is a
sufficiently special relationship to sustain a claim for negligent misrepresentation to be “highly fact-
specific and generally not susceptible to resolution at the pleadings stage.” Century Pac., Inc. v. Hilton
Hotels Corp., No. 03 Civ. 8258(SAS), 2004 WL 868211, at *8 (S.D.N.Y. Apr. 21, 2004) (internal citation
and quotation marks omitted). Even if not generally present in an arms-length relationship, such a
duty will be found where there is “some identifiable source of a special duty of care” and includes not
only those with a fiduciary duty or privity-like relationship, but “those persons who possess unique or
specialized expertise” such that “in morals and good conscience the one has the right to rely upon the
other for information.” J.P. Morgan Securities, Inc. v. Ader, 9 N.Y.S.3d 181, 182 (App. Div. 2015) (not
finding such a duty with regard to the plaintiff’s superior knowledge of the hedge fund business).
Specialized knowledge imposes such a duty where a party (1) has superior knowledge, (2) that
is not available to the other party by reasonable inquiry, and (3) the first party knows that the second
party is acting on the basis of mistaken knowledge. See Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404
F.3d 566, 582 (2d Cir.2005); see also Jana L. v. West 129th Street Realty Corp., 802 N.Y.S.2d 132 (App.
Div. 2005) (holding that the “special facts” doctrine requires that the information be “peculiarly within
the knowledge” of the defendant and not discoverable by the plaintiff through the “exercise of
ordinary intelligence”).
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Here, MRS has pled that the identities and information with regard to each loan set forth on
the Corrupted List were within the superior knowledge of Defendants and could not reasonably be
discovered by MRS without “enormous personnel time” and effort. (TAC ¶¶ 180-81). Further,
Defendants certainly knew that MRS was acting on the basis of mistaken knowledge of the contents
of Exhibit A because Defendants provided it. Therefore, MRS’ claim of negligent misrepresentation
Plaintiffs
B. - - -Have Properly
-- - - Pled
--A Claim
- -Of -Conversion
---
Plaintiffs’ conversion claim (the Fourth Claim) is not duplicative of Plaintiffs’ breach of
contract claims because success on the conversion claim may entitle the Plaintiffs to special damages.
In St. John's Univ., New York v. Bolton, 757 F. Supp.2d 144, 178 (E.D.N.Y. 2010), St. John’s sued to
recover for valuable patents in their employees’ work which the employees had never revealed, the
court permitted pleading of both breach of contract and conversion claims because a conversion claim
could entitle the plaintiff to an award of punitive damages. The court explained that “[p]unitive
damages ‘may be recovered for an act of conversion where the circumstances establish that the
conversion was accomplished by malice or reckless or willful disregard of the plaintiff's right.’” quoting
Ashare v. Mirkin, Barre, Saltzstein & Gordon, P.C., 106 Misc.2d 866, 870, 435 N.Y.S.2d 438
(N.Y.Sup.Ct.1980), modified on appeal to delete punitive damages, 81 A.D.2d 650, 650, 441 N.Y.S.2d 408 (2d
Dep't 1981), aff'd, 54 N.Y.2d 891, 892, 444 N.Y.S.2d 918, 429 N.E.2d 425 (1981). In St John’s, the
court found it reasonable to assume from the complaint that the defendants knew of the university’s
Here, there can be no question that Defendants knew of Plaintiffs’ rights in the loans because
they sold the loans to them. See also Caballero v. Anselmo, 759 F.Supp. 144, 153–54 (S.D.N.Y.1991)
(punitive damages available for conversion where Defendant has malice or reckless disregard of
Plaintiff's rights). Moreover, Plaintiffs have pled that Defendants acted with “malice and an intent to
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Case 1:15-cv-00293-LTS-RWL Document 83 Filed 12/07/15 Page 29 of 33
enrich” themselves at the expense of the Plaintiffs. (TAC ¶ 168). “The act is malicious when the
thing done is with the knowledge of plaintiff's rights, and with the intent to interfere therewith. In a
legal sense it means a wrongful act, done intentionally, without just cause or excuse.” Lamb v. S. Cheney
Defendants are equally wrong in their assertion that Plaintiffs have not properly pled
conversion. In order to state a claim for conversion, a plaintiff must plead the “unauthorized
assumption and exercise of the right of ownership over goods belonging to another to the exclusion
of the owner's rights.” Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 403-04 (2d Cir. 2006), quoting
Vigilant Ins. Co. of Am. v. Hous. Auth., 660 N.E.2d 1121 (N.Y. 1995).
Plaintiffs have met all of these pleading requirements and their claim of conversion should not
be dismissed. Defendants’ cases do not compel a contrary result. For example, in Anthracite Capital,
Inc. v. MP-55 West Fifth Mezzanine, LLC, 2005 WL 1155418, at *9 (S.D.N.Y. May 17, 2005), the court
held on summary judgment that the defendants, who had refinanced debt on a number of properties
they owned, were not liable for conversion based on allegations by the plaintiff REIT, which owned
a portion of defendants’ securitized loan, that they had improperly filed UCC statements terminating
plaintiff’s security interest in some of the property without paying it a contractual fee. Without
citation, the court stated that the security interest was “intangible property” and therefore not subject
to a conversion claim. Similarly, in Barker v. Amorini, 995 N.Y.S.2d 89 (App. Div. 2014), the court
affirmed dismissal of a conversion claim on the basis that the proceeds of a sale of a business could
5 Although the court’s decision was somewhat bare on facts, the briefs of the parties are available on Westlaw and reveal
that the allegation in question was that “Defendant converted all of the funds received from the sale of the business and
forwarded none of said funds” to the plaintiff. Barker v. Amorini, 2014 WL 7665566 (App. Div. 2014).
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The New York Court of Appeals holds that a conversion claim may apply to “things
represented by valuable papers, such as certificates of stock, promissory notes, and other papers of
value” as well as compilations of electronic information. Thyroff v. Nationwide Mut. Ins. Co., 864 N.E.2d
1272, 1276 (N.Y. 2007) (answering certified question). Further, under New York law, money may
be the subject of a conversion claim where the funds in question are specific and identifiable. See, e.g.
Newbro v. Freed, 409 F. Supp. 2d 386, 394 (S.D.N.Y. 2006) (collecting cases) aff'd, No. 06-1722-CV,
2007 WL 642941 (2d Cir. Feb. 27, 2007). Accounts receivable may also be the subject of a conversion
claim, see, e.g. Goldberger v. Rudnicki, 944 N.Y.S.2d 157, 159 (App. Div. 2012), as may mortgage
documents. E. River Sav. Bank v. Sec'y of Hous. & Urban Dev., 702 F. Supp. 448, 455 (S.D.N.Y. 1988)
(holding that complaint did not state a claim for conversion since the allegations were regarding
Here, in addition to their claims that Defendants improperly released liens, Plaintiffs have
also alleged that the Defendants wrongfully forgave multiple loans that belonged to the Plaintiffs.
(TAC ¶ 168). Plaintiffs have also alleged that Defendants withheld a proper Exhibit A and “stripped
most of the origination documentation from the loan files, including federal disclosures and good faith
estimates, such that Plaintiffs could not respond to borrower or regulatory inquiries; and failed to
provide accurate borrower payment histories” (TAC ¶ 60). In addition to the specific, identifiable
mortgages, Plaintiffs properly allege that Defendants withheld identifiable, tangible items and their
conversion claim should not be dismissed. See, e.g OneWest Bank N.A. v. Lehman Bros. Holding Inc., No.
14-CV-8916 JMF, 2015 WL 1808947, at *1 (S.D.N.Y. Apr. 20, 2015) (declining to dismiss conversion
claim where Defendants allegedly withheld mortgage servicing files from the Plaintiff).
The-
C. - Tortious
- -Interference
---- Claim
- Should
- - Not
--Be -
Dismissed
--
Defendants’ contention that the tortious interference claim (Fifth Claim) should be dismissed
rests on two very shaky foundations: that Plaintiffs purportedly did not identify the “contracts they
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would have consummated” but for Defendants’ interference—which they did—and that the law
requires that there be a “malicious” intent to harm Plaintiffs—which it does not. (Def. Mem. at 16-
17).
First, Plaintiffs identified “contracts they would have consummated,” giving at least two
specific examples. Plaintiffs clearly pled that 1st Fidelity had entered into a payment plan with the
Warwicks after recording an assignment of mortgage from Plaintiffs on December 11, 2009. The
Warwicks were making monthly payments in accordance with the plan (TAC ¶ 114), at which point
Defendants sent the Warwicks a letter extinguishing the mortgage and cancelling the debt. (TAC ¶
115). As a result, the Warwicks stopped paying. (TAC ¶ 117). Similarly, Plaintiffs pled that 1st Fidelity
entered into a payment plan with Teresa Hancock-Roberts, after recording a mortgage assignment on
November 4, 2009. Ms. Hancock-Roberts was making payments in accordance with the plan (TAC
¶ 126) until Defendants wrongfully sent a forgiveness letter and cancelled the debt. (TAC ¶ 127). Ms.
Second, the law provides that rather than pleading malice, a plaintiff may also plead that the
interference was accomplished by wrongful means. See, e.g. Carvel Corp. v. Noonan, 818 N.E.2d 1100
(N.Y., 2004); Jacobs v. Continuum Health Partners, 776 N.Y.S.2d 279 (App. Div. 2004). “ ‘Wrongful
means' include[s] physical violence, fraud or misrepresentation, civil suits and criminal prosecutions,
and some degrees of economic pressure” Carvel, 3 N.Y.3d at 191. Here, as just described, Plaintiffs
have properly pled that Defendants sent out false and fraudulent loan forgiveness letters and
Plaintiffs’
D. - - - Claim- -Of
-Slander
- - Of-Title
-- Is -
Properly
- -Pled
-
Defendants’ contention that Plaintiffs’ claim of slander of title (Eighth Claim) is barred by the
statute of limitations is wrong. According to the New York Court of Appeals in Rosenbaum v. City of
New York, 861 N.E.2d 43 (N.Y. 2006) (dismissing claim against the City based on inadequate notice
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Case 1:15-cv-00293-LTS-RWL Document 83 Filed 12/07/15 Page 32 of 33
of claim), the one year statute of limitations does not begin to run until the time that “pecuniary loss
is incurred.” Here, Defendants contend that the only relevant allegations are that Plaintiffs pled that
they sent debt forgiveness letters between September 2012 and January 2013, and executed lien
releases in October and November 2013. (Def. Mem. at 20, TAC ¶¶ 103-04, 142-43, 194).
However, Defendants completely ignore the allegations that Defendants falsely informed
borrowers, insurance companies, collection agencies and others that Defendants owned loans when
the loans had been sold to Plaintiffs, presumably because they cannot attach dates that would place
them outside the statute of limitations. (TAC ¶ 194). The original complaint was filed on December
24, 2014. Even with regard to the allegations including the debt forgiveness letters and lien releases,
the owners of the mortgaged properties whose liens were wrongfully released or whose mortgages
were wrongfully forgiven could only have stopped paying Plaintiffs, thus triggering the running of the
statute of limitations, after receiving notice that the liens had been released. As such, the statute of
Defendants are wrong in arguing that Plaintiffs have not properly pled malice simply because
Defendants can come up with other explanations for their actions. (Def. Mem. at 18) Under the well-
settled standard for demonstrating malice in claims of defamation not associated with title, the
Supreme Court holds that malice need not be the sole motivating factor. New York Times v. Sullivan,
376 U.S. 254, 279–80 (1964) (a plaintiff need not prove that actual ill will was the sole motivating
factor for the publication of the defamatory statement, but “must demonstrate that the ‘statements
[were] made with [a] high degree of awareness of their probable falsity’); see also Cty. Vanlines, Inc. v.
Experian Info. Sols., Inc., 317 F. Supp. 2d 383, 391 (S.D.N.Y. 2004) aff'd, No. 04-2982-CV, 2005 WL
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CONCLUSION
For all the foregoing reasons, Defendants’ Motion to Dismiss should be denied in its entirety.
However, in the event that it is granted, Plaintiffs hereby request the right to file an amended complaint
to deal with any found deficiencies in the allegations. As the Second Circuit recently held in Loreley
Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160, 190 (2d Cir. 2015), a court must allow a
plaintiff the opportunity to amend the complaint after decision on a motion to dismiss. Otherwise,
the plaintiff is presented with “a Hobson's choice: agree to cure deficiencies not yet fully briefed and
decided or forfeit the opportunity to replead. Without the benefit of a ruling, many a plaintiff will not
see the necessity of amendment or be in a position to weigh the practicality and possible means of
curing specific deficiencies.” Accordingly, while Plaintiffs believe that the allegations in the TAC are
sufficient to state each of their claims, they reserve the right to file an amended complaint in the event
CHAITMAN LLP
Lance Gotthoffer
[email protected]
Suzan Arden
[email protected]
{00011961 3 } 25