Court: District Court, S.D. New York; August 22, 2014; Federal District Court
On October 22, 2009, Nance Hutter initiated a lawsuit against several defendants, including California-based Watermark Capital, Inc., New York-based Evolution Mortgage, Inc., and Countrywide Bank, N.A. (now part of Bank of America), seeking monetary damages and rescission of a $1.785 million mortgage loan issued by Countrywide on December 11, 2006. Hutter's Third Amended Complaint (TAC) alleges multiple violations: Countrywide failed to provide proper notice of her right to cancel the loan under the Truth in Lending Act (TILA); the defendants engaged in misleading practices under the New York Deceptive Practices Act; Countrywide and Evolution paid illegal kickbacks violating the Real Estate Settlement Procedures Act (RESPA); and Watermark brokered the loan without proper licensing under New York law.
Currently, Hutter is seeking permission to amend her complaint again (Proposed Fourth Amended Complaint, PFAC), which includes new factual allegations, changes to existing claims, and the addition of new parties, including former defendants Sciacca and Joutz, as well as Dragna, who was not previously named. Hutter also aims to include Countrywide and Evolution in the claims related to licensing violations.
Defendants argue that the amendments are prejudicial and would be futile, claiming that the motion is made in bad faith to delay proceedings. Countrywide has also filed for sanctions against Hutter and her counsel for allegedly multiplying proceedings unreasonably and for submitting legally unsupportable claims. The court denied Hutter's motion to amend, granted Countrywide's Rule 11 motion for sanctions, and denied the motion for sanctions under § 1927. The legal standard for amending pleadings allows for amendments before trial with the court's leave, which should be granted unless there is evidence of undue delay, bad faith, futility, or prejudice to the opposing party.
Amendments to pleadings are generally permitted in the absence of demonstrated prejudice or bad faith by the opposing party. Delay alone does not warrant denial unless it is undue and unexplained, leading to potential prejudice against the defendant. Courts evaluate whether the amendment would require significant additional resources for discovery, cause delays in resolution, or impede timely actions in other jurisdictions. A lengthy unexplained delay reduces the burden on the opposing party to show prejudice. Conversely, amendments may be denied on the grounds of futility if they do not present a legally cognizable claim or fail to raise triable issues of fact. When evaluating futility, courts apply a summary judgment standard, particularly after the discovery phase, and may reject amendments if they do not create any triable issues, allowing the defendant to claim judgment as a matter of law.
A triable issue of material fact arises when evidence suggests a reasonable jury could favor the party seeking to amend pleadings. Generalized statements lacking specifics do not create such issues. Plaintiffs must demonstrate more than a mere theoretical doubt regarding material facts. The Plaintiff filed a Third Amended Complaint (TAC) on November 15, 2011, with a Discovery Plan allowing for amendments by November 28, 2012. Following the close of discovery, the Plaintiff indicated a desire to file a Fourth Amended Complaint to include claims of conspiracy to violate Banking Law, agency relationships, and to add parties Joutz and Dragna, while also retracting a prior assertion regarding an adjustable rate loan. The Court established a briefing schedule for this motion. On November 11, 2013, the Plaintiff sought further changes, alleging Countrywide's failure to ensure her ability to repay the loan, her duress during closing, and additional claims against Countrywide and its agents. The Court noted the lengthy history of the case and the Plaintiff's delays in seeking amendments, suggesting possible dilatory motives. Regarding the joinder of non-parties, the Plaintiff argues that Dragna and Joutz, as officers of Watermark, could be personally liable under relevant laws due to their involvement in wrongful acts, including unlicensed brokerage work for the Plaintiff's loan.
Joutz, as the president of Watermark, is alleged to have known or should have known about Dragna’s misconduct. Dragna claims the action against him is barred by a six-year statute of limitations; however, it is clarified that the applicable statute is three years under GBL § 349 and N.Y. C.P.L.R. 214(2), which governs liabilities created by statute, including those under N.Y. Banking Law § 598(5). Since the plaintiff's claim arose in December 2006, the proposed First Amended Complaint (PFAC) against Dragna would be futile due to the expiration of the statute of limitations. The plaintiff's argument for equitable tolling, based on Watermark's alleged concealment of a check, is deemed unpersuasive as there is no indication that the plaintiff was unaware of her cause of action due to misleading conduct by the defendant.
Regarding Joutz, the court previously permitted the plaintiff to re-plead to establish personal jurisdiction. The plaintiff's amended allegations state that Joutz was involved in creating company policies and decisions that linked Watermark to the plaintiff's loan, including accepting an illegal commission. However, the court finds that the PFAC does not sufficiently demonstrate personal jurisdiction over Joutz, referencing the precedent set in International Shoe Co. v. Washington. Although corporate officers can be held individually liable for torts committed during their corporate duties, the plaintiff fails to provide evidence of Joutz's direct involvement in the alleged misconduct and relies on speculation about his knowledge of Dragna's actions. The plaintiff's citation of FTC v. Crescent Publishing Group is found to be inapplicable as it pertains to different legal standards and contexts.
The case differs from Crescent Publishing Group because the Plaintiff has not provided evidence of Joutz's active involvement in the alleged scheme, rendering new allegations against him futile. Consequently, the Plaintiff's motion to assert claims against Dragna and Joutz is denied. Regarding Sciacca, the Plaintiff aims to add him as a defendant on Claims 2 through 4 involving violations of the GBL, RESPA, and Banking Law. Although he was previously a co-defendant in these claims, Judge Seibel had dismissed the earlier complaint while allowing the Plaintiff to include additional facts demonstrating Sciacca's involvement in the alleged conduct under GBL and RESPA, but explicitly did not permit re-pleading of the Banking Law claim against him. Therefore, the court denies this amendment. The Plaintiff's arguments primarily focus on alleged violations of Banking Regulations, but fails to substantiate any RESPA violations, merely mentioning Sciacca's name without details. The PFAC alleges that Sciacca and Evolution shared processing fees and yield-spread premiums in violation of Banking Law, failed to disclose fee sharing, and did not file necessary documentation for hiring Dragna, contributing to illegal mortgage brokering. However, there is no mention of any violations of GBL § 349. Sciacca contends that he cannot be held personally liable as a corporate officer acting within the scope of his duties unless there is clear evidence of personal liability, supported by case law asserting that agents for disclosed principals are not personally bound without explicit intention to assume liability.
Sciacca's motion to dismiss the amended complaint (AC) is noted, but the Court finds it unnecessary to address his arguments due to the Plaintiff's failure to demonstrate Sciacca's personal involvement in any materially misleading deceptive acts towards consumers. Consequently, the claims against Sciacca are deemed futile, and Plaintiff's request to assert or reassert claims against him is denied.
The Plaintiff seeks to modify the theory in certain sections of the third amended complaint (TAC). She intends to remove a longstanding allegation regarding Defendants misrepresenting the suitability of an adjustable-rate loan, which she now admits is untrue. Additionally, she claims her husband negotiated the loan on her behalf and asserts that she was coerced into signing loan documents due to a traumatic brain injury she sustained shortly before the loan closing. Furthermore, she wishes to seek consequential damages related to her inability to sell her home and lost opportunities for stock dividends due to a lower credit score from her mortgage default. She also alleges that Countrywide violated General Business Law (GBL) § 349 by improperly conducting business with Watermark.
The Court file reveals that the Plaintiff has consistently claimed that Defendants misrepresented the adjustable-rate mortgage's suitability. This raises questions regarding her good faith in altering this allegation after the close of discovery, especially following the Defendants' notice of intent to file summary judgment motions. Both Evolution and Watermark argue that the new agency theory would necessitate additional depositions, as they had not previously pursued this line of questioning. Countrywide contends that the removal of the false allegation while retaining other contradictory claims would be futile, as it would still be able to present the original allegation to a jury.
Changing the allegations at this stage would be prejudicial to Defendants, as the Plaintiff had the opportunity to assert these claims before the lawsuit began but failed to do so in a timely manner. The Court highlights a four-year delay in asserting new allegations without justification, which has caused significant delays in the case. Defendants relied on the original complaints during discovery and should not be expected to anticipate these changes. The Court cites relevant case law to support its position that the lengthy delay and lack of explanation warrant denial of the Plaintiff's application to amend.
Furthermore, the request to remove a purported falsehood is deemed futile, as the Plaintiff's claims regarding being offered a fixed-rate loan contradict her prior assertions of being promised an adjustable rate. Evidence, including the Good Faith Estimate and the required acknowledgments from the loan application, supports the Defendants' position.
Regarding claims of duress and incapacity, the Plaintiff alleges that her husband requested a delay in closing due to her condition after an automobile accident, yet was pressured by Watermark to proceed with the closing. Additionally, she claims a permanent disability affecting her cognitive function. Defendants argue these allegations should have been known prior to the lawsuit and label them as a last-ditch effort to salvage her case. The Court finds that allowing these new claims after four years would further prejudice the Defendants, reinforcing the decision against permitting the amendments.
Plaintiff's delay in asserting facts relevant to her claims has been significant and unexplained, which has hindered the resolution of the case. She has not provided evidence of any wrongful threat necessary to establish duress for voiding a contract, relying instead on her husband’s deposition that lacks substantiation of a coercive threat. Additionally, the long delay—seven years post-closing and four years post-filing—renders her duress claim futile, as agreements made under duress must be promptly disaffirmed. The attempt to assert claims of duress and incapacity introduces a new rescission claim under state contract law, subject to a six-year statute of limitations, which has expired. Plaintiff's effort to connect this claim to her General Business Law (GBL) claim fails, as the new allegations do not meet the required standard of misleading conduct aimed at consumers. Consequently, her application to assert lack of capacity and duress in contract execution is denied. Regarding consequential damages, Plaintiff claims she missed the opportunity to sell her home at peak value due to reliance on a promised loan rate. However, the actual loan interest rate was 1.5% initially, and both Evolution and Countrywide argue that her alleged losses are speculative, pointing out that she had the option to sell her home and benefited financially from the loan.
Plaintiff did not engage a broker to sell her house and claims damages from lost dividend income and unrealized capital appreciation in stock from Industrial Distribution Corp., a company intended to manufacture temporary housing for disaster victims. This claim is linked to her inability to secure a loan after defaulting on a Countrywide loan, which harmed her credit score. Evolution and Countrywide argue that her damage theory is speculative, citing her husband's admission that the company became inactive before Hurricane Katrina and had not sold any shelters by October 2013 due to a pending patent. Additionally, Countrywide notes that Plaintiff secured other adjustable-rate mortgages in 2004 and 2005, undermining her claim that Countrywide's actions are to blame for her financial situation. The Court finds introducing these consequential damages at this stage would prejudice the Defendants, as Plaintiff failed to timely assert these theories, which she should have known before initiating the action in 2009. Furthermore, the proposed amendment is deemed futile since it relies on unsubstantiated speculation and lacks sufficient support from the expert report, which is based on a vague business plan and assumptions about selling her home in 2006. Consequently, the request to introduce these new consequential damages theories is denied.
Plaintiff seeks to amend Claim 2 under the General Business Law (GBL) to include allegations that Countrywide violated the Banking Law, asserting that a fax indicates Countrywide's involvement with Watermark. A purported statement from Watermark employee Todd Matthews suggests Countrywide introduced Evolution into the deal due to Watermark's lack of licensing in New York. Although Plaintiff references testimonies from Dragna and Sciacca regarding their meeting at a training session prior to the loan, she argues their inability to recall details undermines their account. Countrywide contends the new allegations are futile, citing inconsistencies in Plaintiff’s husband's statements over time, particularly a 2010 affidavit contradicting her current claims. The Court agrees, finding the new allegations do not demonstrate any materially misleading deceptive acts necessary for a GBL violation and lack sufficient evidence to support a Banking Law violation. Additionally, the amendment would prejudice Countrywide as the husband was aware of the facts when the original complaint was filed. The request to add Evolution and Countrywide as defendants under the Banking Law also lacks evidentiary support, as plaintiffs cannot rely on unsubstantiated claims, and the Banking Law allows private actions only in specific circumstances involving licensees. Thus, the Court denies the application for amendment.
Recovery from a non-exempt unlicensed entity for violations related to banking regulations can be pursued for up to four times the amount paid by a loan applicant. Countrywide is classified as an "exempt organization" under the relevant regulations. A plaintiff can only bring a private right of action against Countrywide if there is a breach of the loan agreement, which did not occur in this case, leaving the plaintiff without a valid claim against Countrywide. The court declines to recognize an implied private right of action, as no supporting New York law has been cited. Additionally, a prior court order dismissed the banking law claim against Evolution for failure to state a claim, allowing amendment only against Watermark, further complicating any claims against Countrywide and Evolution. The court finds that adding these entities would be futile and denies the request to amend.
The plaintiff seeks to introduce expert testimony from Professor Raymond H. Brescia regarding Countrywide's lending practices from 2003 to 2008, asserting that Countrywide intended to securitize and sell the loans rather than retain the risk of default. The plaintiff contends this context explains Countrywide's acceptance of a false income statement without verification. However, Countrywide argues that it did not violate the General Business Law (GBL) by accepting the plaintiff's income assertions, as previously ruled by the court. The court agrees that offering a no-documentation loan is not inherently improper, and thus the new allegations contradict existing legal determinations. Countrywide further claims that the expert's assertions are irrelevant and prejudicial to the case.
Brescia's report is criticized for failing to distinguish Countrywide from its separate corporate entities, Countrywide Financial Corporation and Countrywide Home Loans, which Countrywide argues is unjust. Countrywide also points out that the new allegations in Brescia's report are based on a Federal Reserve report, the methodology of which Brescia did not understand. The Court identifies that some new allegations violate the law of the case doctrine, which maintains that once a court rules on a legal principle, it should govern subsequent proceedings unless there is a significant change in the law, new evidence, or a need to correct an error. Specifically, only paragraph 57(g)(1) of the proposed amended complaint suggests impropriety regarding Countrywide's mortgage application representations. Other referenced paragraphs do not address previously stricken matters and relate to the consumer-oriented nature of Countrywide's actions under GBL § 349. However, the Court indicates that the plaintiff's request to amend the complaint, made over six months after Brescia’s report and following the defendants' intent to file for summary judgment, appears to be a tactic to delay proceedings and is therefore denied. Additionally, the plaintiff seeks to assert that Watermark and Evolution acted solely as agents of Countrywide, relying on contracts and the circumstances surrounding the loan negotiation. The plaintiff's claims are based on both implied and apparent agency theories, as defined under New York law, which requires mutual consent and control in agency relationships.
An agency relationship may be formed either through explicit agreement or implied conduct. Express agency is exemplified in a case where a telephone owner allowed a defendant to sell phones on a commission basis. Implied agency can arise from the principal's conduct, leading to apparent authority, which binds a principal to third-party contracts even if actual authority is lacking. Knowledge of the agent regarding matters within the agency's scope is imputed to the principal. Both implied actual authority and apparent authority depend on the principal's actions that suggest the agent has the authority to act. For implied authority, the principal's acts must be communicated to the agent, while for apparent authority, the third party must be aware of them. An agency can also be established through conduct that reasonably leads a third party to believe an agency exists.
In this context, the contracts between Countrywide and the Brokers do not demonstrate an agency relationship, as they prohibit the Brokers from representing themselves as Countrywide’s agents. Countrywide's agreement with the Brokers is non-exclusive, allowing them not to submit all loan requests. The plaintiff argues that courts are not bound by agency disclaimers in contracts, referencing a case where the parties explicitly stated no agency relationship existed—a distinction relevant to this case. The plaintiff’s reliance on an expert's report suggesting a network of brokers is unsubstantiated, as there is no evidence that the Brokers believed they were acting as agents for Countrywide. The claims of apparent agency based on Watermark's promises are unsupported by the evidence cited.
The estimate provided by Watermark Capital, a mortgage broker, clearly states that no lender has been secured. The plaintiff's reliance on her husband's October 15, 2013 deposition, where he mentioned Watermark's employee promoting a 1.5% interest rate without identifying the lender until shortly before closing, is insufficient. There is no indication that Countrywide had authorized Watermark or Evolution to act on its behalf. The plaintiff previously claimed that Countrywide assured her she could afford the payments, that refinancing would benefit her, and made various other representations, yet both she and her husband denied any direct contact with Countrywide before the loan closing. Consequently, the theory of apparent authority fails, rendering any amendment futile. Countrywide argues that the proposed amendment would be prejudicial, as it would necessitate additional discovery regarding Watermark and Evolution’s agency status, which would delay the proceedings. The plaintiff contends that Countrywide should have anticipated the agency theory due to its cross-claims against Watermark and Evolution. However, these cross-claims do not sufficiently indicate anticipation of the agency theory. Additionally, the plaintiff seeks to amend allegations regarding a fictitious monthly income figure of $38,500 on her loan application, claiming it was fabricated and did not exist until the closing, thus asserting that Countrywide could not have relied on her stated income when approving the loan. The motion to amend based on this new agency theory must be denied due to the outlined prejudicial impacts.
Plaintiff asserts that Countrywide lacked knowledge of her income prior to the closing date based on her deposition testimony, where she confirmed that she and her husband had no income at that time. Plaintiff cited a specific exchange in which she defined "no income" as no earnings or financial support. In contrast, Countrywide presented internal documents updated before the closing, indicating a monthly income of $38,500 that matched the loan application. The court noted that Plaintiff's new allegations do not introduce significant new facts and are mere reiterations of previously alleged facts, which does not establish a triable issue. Furthermore, the court expressed skepticism about Plaintiff's motives for seeking to amend the complaint, suggesting it was an attempt to delay proceedings following Countrywide's intent to file for summary judgment.
Countrywide is also pursuing sanctions against Plaintiff's counsel, Stephen A. Katz, under 28 U.S.C. § 1927, arguing that the motion to amend served no legitimate purpose and was made in bad faith to prolong litigation. To impose sanctions, the court must find that Katz's actions were completely meritless and undertaken for improper motives, requiring evidence of subjective bad faith. The standards for imposing such sanctions include demonstrating that the claims were entirely without merit and that the attorney acted with an improper purpose.
Countrywide contends that the Plaintiffs' First Amended Complaint (PFAC) is devoid of merit and exhibits bad faith by Katz due to significant inconsistencies with prior complaints, particularly regarding the Plaintiffs' interactions with Countrywide and allegations of misleading loan advice. Countrywide challenges speculative claims about alleged introductions of individuals by the Plaintiffs and points out contradictions in the husband's affidavit compared to one submitted in 2010. The Court acknowledges that some proposed amendments by the Plaintiffs are not entirely without merit based on existing evidence but denies the amendment due to perceived prejudice and potential delays. The Court is reluctant to impose sanctions in the absence of prior misconduct. Countrywide’s request for sanctions under 28 U.S.C. § 1927 is denied, as the Court finds no previous misconduct warranting such measures. Additionally, Countrywide seeks sanctions under Rule 11 for knowingly presenting false allegations. Rule 11 obligates attorneys to certify that their filings are based on reasonable inquiry and have factual support. The standard for this inquiry is objective, taking into account the circumstances of each case, and the Court is instructed to avoid hindsight when assessing violations.
If the court finds a violation of Rule 11(b), it can impose sanctions on any attorney, law firm, or party responsible for the violation, with the discretion to decide on the appropriateness of such sanctions. However, monetary sanctions cannot be levied against a represented party for violations of Rule 11(b)(2). Countrywide claims several violations of Rule 11(b) by the plaintiff, including:
1. Allegations in the Third Amended Complaint (TAC) lacking evidentiary support regarding Countrywide's statements.
2. Attempts to alter loan-related allegations without evidence.
3. Misrepresentation of the Good Faith Estimate by Katz.
4. False allegations regarding Countrywide's involvement with Evolu*388tion for a meritless Banking Law claim.
5. Inconsistent characterizations of the plaintiff's incapacity and misleading claims about closing practices.
6. Shifting allegations about the Brokers' agency relationship.
7. A meritless "fraud in the execution" theory.
Countrywide contends that the plaintiff and her husband admitted in depositions to not having direct communications with Countrywide, suggesting Katz failed to conduct a reasonable inquiry before filing. While the plaintiff argues that a witness admitted sending her a Good Faith Estimate, the court notes that actual proof of such an estimate from Countrywide is absent. The court finds some basis for the plaintiff's GBL claim, but the evidence does not fully support claims that Countrywide represented the plaintiff's ability to afford loan payments.
The bank allegedly misled the Plaintiff into believing she could afford monthly payments and that refinancing would be beneficial. It purportedly assured her that an adjustable-rate loan was suitable and predicted rising housing prices. However, Plaintiff and her husband claimed to have no contact with the bank, raising doubts about the validity of these allegations, which have persisted in the operative complaint. This led to a violation of Rule 11(b)(3) regarding the lack of evidence to support these claims.
The Plaintiff's complaints indicate she was told she could afford a $1,875,000 adjustable-rate Pay Option loan, though these payments exceeded her financial capacity. A motion to amend the complaint sought to remove the assertion that the defendants deemed an adjustable-rate mortgage appropriate for her, with the argument that no one from the mortgage companies explicitly stated this. Instead, it was only at closing that she unexpectedly received an adjustable-rate loan.
In response to Countrywide's motion for sanctions, the Plaintiff's counsel clarified that the complaints did not specify whether a fixed or variable-rate loan was offered; they merely stated a 1.5% interest rate was promised. The argument made by Countrywide misinterpreted the complaint, suggesting the Plaintiff was offered a variable-rate loan when it only mentioned that such a loan was deemed "right" for her. The Plaintiff's new position attempts to clarify that she was promised a fixed-rate loan, contradicting prior complaints that implied a variable-rate loan was discussed.
The Court noted inconsistencies in the Plaintiff’s arguments, first claiming no suggestion of an adjustable-rate mortgage was made, then allowing for the possibility it might have been. The assertion that a fixed interest rate was promised contradicts previous complaints, which indicated an understanding that a variable interest rate would apply. Additionally, the Plaintiff's new affidavit stated she had not discussed whether she was offered a fixed or variable-rate loan before the original complaint or any subsequent filings.
Katz, representing the Plaintiff, failed to inform his attorney about a promised fixed-rate loan before her deposition, indicating a lack of reasonable inquiry into the type of loan the Plaintiff believed she had been offered. This omission constitutes a violation of Federal Rule of Civil Procedure 11(b). The court found that Katz mischaracterized the Good Faith Estimate by claiming it promised a 1.5% fixed interest rate, despite the document clearly labeled as an "MTA Option Arm." Katz's assertion that the term "Option Arm" was confusing and not indicative of an adjustable rate loan was dismissed, especially since the Plaintiff had previously dealt with adjustable-rate mortgages. The court deemed Katz's claims regarding the Good Faith Estimate as unfounded and unsupported by evidence, leading to another violation of Rule 11(b)(3). Additionally, Katz submitted conflicting affidavits from the Plaintiff's husband regarding the involvement of Evolution Mortgage in the loan process, with the first affidavit stating no specific broker was mentioned and the second alleging that Evolution Mortgage was engaged due to licensing issues. Countrywide highlighted these contradictions to argue that Katz's new claims were knowingly false and unsupported by any discovery evidence.
Plaintiffs' husband testified that he was unaware of Countrywide's involvement and that Sciacca and Dragna met independently of Countrywide. In response to a Rule 11 sanctions motion, Katz submitted a third affidavit from Plaintiffs' husband, claiming that Matthews indicated the need for a licensed New York mortgage broker to close the deal, as Watermark Capital was not licensed in New York. He stated that Countrywide helped locate Evolution Mortgage for this purpose. Katz criticized Sciacca and Dragna’s testimonies about their meeting, describing them as evasive and lacking detail, including an inaccurate physical description of Sciacca. The first two affidavits from Plaintiffs' husband contradict each other, suggesting Katz failed to conduct a reasonable inquiry before submitting the initial affidavit. This inconsistency indicates a violation of Rule 11(b)(3). Additionally, Katz's attempt to assert a Banking Law claim against Countrywide lacked legitimate legal grounding, as the applicable statutory provisions do not support such a claim in this context. Furthermore, Countrywide contended that Katz violated Rule 11 by presenting inconsistent arguments regarding the Plaintiff's incapacity. The initial motion suggested the Plaintiff did not understand the closing, while the proposed amended claim asserted her incapacity voided the loan. Katz later clarified that the Plaintiff did not seek common-law rescission but claimed the defendants acted unfairly in forcing her to close the loan despite her injuries. These inconsistencies were deemed frivolous legal contentions, as the new claim was barred by the statute of limitations and did not validly extend the scope of the General Business Law.
A bank's requirement for a borrower to attend a loan closing does not qualify as a misleading action, leading the Court to determine that Katz violated Rule 11(b)(2) related to fraudulent execution claims. The Plaintiff countered a motion for sanctions by arguing that amendments to her proposed first amended complaint (PFAC) would bolster her case and were not futile, claiming the defendants pressured her into closing on a loan despite her serious injuries. She referenced a case where fraud in execution occurs when a party is unaware of the document's nature or consequences at signing. Countrywide argued that Katz was attempting to introduce a new claim or improperly challenge a previously dismissed fraudulent inducement claim. Katz attempted to justify his citation of the fraud in execution case by linking it to the Plaintiff's alleged mental incapacity during the loan closing. However, the Court deemed his extensions of the General Business Law (GBL) claim as frivolous, violating Rule 11(b)(2).
Additionally, Plaintiff previously claimed that Watermark Capital and Evolution Mortgage were her agents in obtaining a loan but now alleged they were agents of Countrywide. Countrywide contended that the Plaintiff misapplied the legal theory of apparent authority, lacking evidence that she relied on an offer from Countrywide. The Plaintiff claimed no direct contact with Countrywide, and her husband was unfamiliar with the bank. Katz noted that he removed the assertion of the brokers as the Plaintiff’s agents after discovering a signed mortgage loan origination agreement stating otherwise. However, the Plaintiff disputed the authenticity of her signature on that document, contradicting her earlier claim of agency by contract.
The Court expresses hesitance in dismissing the Brokers-as-Plaintiffs-agents argument as lacking evidentiary support at the time the Amended Complaint (AC) was filed. The Plaintiff continues to assert that the Brokers acted as agents for Countrywide, referencing additional evidence and new arguments regarding Countrywide's control over the Brokers. However, the Court finds these arguments unsubstantiated and merely conclusory, as the cited provisions in the Wholesale Broker Agreements only detail the Brokers' contractual obligations. Despite the improper nature of these renewed agency arguments, the Court concludes they do not constitute a violation of Rule 11(b)(2).
Regarding potential sanctions for Rule 11 violations, the Court notes that imposition is discretionary and should be tailored to deter similar future conduct. Sanctions can include nonmonetary directives, penalties, or payment of attorney fees directly related to the violation. The Court will consider several factors in determining appropriate sanctions, such as whether the conduct was willful or negligent, if it was part of a pattern or isolated, its impact on the litigation process, and the legal training of the responsible party. Countrywide claims that the Plaintiff and Katz engaged in willful misconduct by filing unsubstantiated complaints, suggesting this behavior constitutes a pattern. They argue that the Plaintiff's misstatements significantly affected the litigation and highlight a recent state court sanction against the Plaintiff for failing to withdraw frivolous claims.
Dismissal is sought by Countrywide to ensure Plaintiff and Katz cease their improper conduct, alongside a request for attorneys’ fees for the entire litigation or, alternatively, from March 10, 2011. Plaintiffs argue against sanctions, asserting that Rule 11 is meant to deter misconduct rather than compensate for legal fees. The Court identifies that Plaintiff and Katz willfully engaged in misconduct that unnecessarily prolonged litigation, particularly concerning the GBL and Banking Law claims, although it deems dismissal as too extreme at this stage. The Court grants Countrywide’s motion for sanctions under Rule 11, requiring Plaintiff’s attorney to pay reasonable fees for opposing the frivolous motion to amend and orders Plaintiff to pay a $100 penalty into the court for altering factual claims without evidence to delay litigation. The motion to amend the complaint is denied entirely, while Countrywide’s motion for sanctions under 28 U.S.C. 1927 is denied. A hearing is scheduled for October 7, 2014, to determine the fee amount unless the parties reach an agreement. Additionally, any requests for premotion conferences regarding summary judgment motions must be submitted by October 31, 2014. The Clerk of Court is instructed to terminate the motions noted in the document. The document also references a denied request related to an allegation in the original complaint about Countrywide's practices and mentions the futility of amending another paragraph due to lack of evidence. Katz's submission of extensive reply briefs is also noted as improper.
The motion to amend is supported by arguments referencing 1927 sanctions, yet demonstrates Katz's disregard for the Court’s page limit rules (Rule 3.B). Although the proposed amendments exhibit some merit, the plaintiff fails to include a critical page from Jenkins’s deposition in her exhibits. Additionally, the reference to federal case law regarding private rights of action is insufficient to establish this Court's jurisdiction to imply such rights under state law. The Court recognizes that the allegations of duress and incapacity constitute a new claim for rescission. Katz argues that requiring a borrower to attend a closing cannot support a General Business Law (GBL) § 349 claim, but the Court rejects this view, equating it to exploitation akin to a fraternity brother taking advantage of a vulnerable college student. Finally, the Court dismisses a letter from the plaintiff's husband to the New York Attorney General as irrelevant, noting it is unsigned, not addressed to anyone, and not filed by either party in the current case.
