Deutsche Bank Securities, Inc., et al v. HSBC Bank, USA National Assoc., et al

Filing 89

Judge Patti B. Saris: ORDER entered GRANTING IN PART AND DENYING IN PART 28 Motion to Dismiss. "ORDER: HSBC Defendants' motion to dismiss (Docket No. 28 ) is ALLOWED IN PART and DENIED IN PART. The motion to dismiss is ALLOWED with respect to Count II, the civil RICO claim, but is DENIED with respect to all other counts." (Anderson, Jennifer)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
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JODI B. MATT,
Plaintiff,
v.
HSBC BANK USA, N.A., et al.,
Defendants.

Civil No. 1:10-11621-PBS

MEMORANDUM AND ORDER
September 23, 2011
Saris, U.S.D.J.
I.

INTRODUCTION
This case involves a home foreclosure. Plaintiff Jodi Matt,

the homeowner, alleges that HSBC Bank USA, N.A. and seventeen
other named defendants engaged in an illegal enterprise to
procure and sell mortgage loan products for ultimate sale in the
secondary market in violation of the Racketeer Influenced Corrupt
Organizations Act (RICO), 18 U.S.C. §§ 1961-68, and state law.1

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Count I seeks “Preliminary and Permanent Injunctive
Relief,” Count II alleges violation of 18 U.S.C. § 1962, Count
III alleges “Respondeat Superior Liability,” Count IV alleges
violation of “Chapter 93A and its Implementing Regulations,”
Count V seeks “Rescission by Way of Recoupment under G.L. c. 140
D,” Count VI alleges “Breach of Contract,” Counts VII and VIII
allege “Intentional Misrepresentation,” the next count listed
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HSBC has moved to dismiss on the ground that the RICO claim is
barred by the statute of limitations.

The court ALLOWS the

motion to dismiss the RICO claim as time-barred, but retains
subject matter jurisdiction over the state-law claims.
II.

FACTUAL BACKGROUND
The following alleged facts, culled from the relevant

portions of Plaintiff’s complaint, are taken to be true for
purposes of this motion to dismiss.

See Ashcroft v. Iqbal, 129

S. Ct. 1937, 1943 (2009).
In early 2005, Jodi Matt owned her Canton, Massachusetts,
home, which was valued at over $750,000, free from any mortgages
or other liens.

Compl. ¶ 27.

On March 18, 2005, Ms. Matt

applied for a loan with Northeast Mortgage Company.

The loan

documents promised an 8.158% interest rate and required monthly
payments of $1,329.26.

Compl. ¶ 28.

However, on April 6, 2005,

a Northeast Mortgage Company representative came to Ms. Matt’s
home and asked her to sign loan documents offering an interest
rate of 10.528% and requiring monthly payments ranging from
$1,429.37 to $1,806.23 after 12 months.

During the signing of

the documents, these changes were never explained to Ms. Matt.
Compl. ¶ 29.

In August of 2005, Countrywide Home Loans

alleges “Civil Conspiracy” under Massachusetts law, Count X
alleges “Breach of the Covenant of Good Faith and Fair Dealing,”
and Count XI alleges “Unjust Enrichment.”
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(“Countrywide”) began servicing the loan.
Ms. Matt was in default.

By the end of 2005,

Compl. ¶ 30.

In February 2006, Ms. Matt’s monthly mortgage payment
increased significantly and subsequent to this increase, the loan
had become several months delinquent.

After the bank denied her

request that it honor the original interest and payment amounts
of the mortgage contract, Ms. Matt entered into a repayment plan
with Countrywide.

Compl. ¶ 31.

In October 2007, Ms. Matt was three months in arrears and
received a foreclosure notice from Countrywide.

Compl. ¶ 33.

Between November 2007 and March 2009, she contacted Countrywide
to try to modify the terms of her loan but was unsuccessful.
Compl. ¶ 34-41.

After learning in May 2009 that Bank of America

had taken charge of the loan, Ms. Matt repeatedly contacted Bank
of America to try to modify the loan and “was told at all times
that the modification was being processed and she would have to
be patient.”

Compl. ¶ 42-44.

Nonetheless, on September 14,

2009, Bank of America sent Ms. Matt notice of its intent to
foreclose on her home.

Compl. ¶ 45.

On January 27, 2010, HSBC

Bank USA, to which Ms. Matt’s Note and mortgage had been
assigned, filed a complaint in the Massachusetts Land Court to
foreclose on Ms. Matt’s home.

Compl. ¶ 47-49.

III. DISCUSSION

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The plaintiffs’ burden is to plead “sufficient matter,
accepted as true, to state a claim for relief that is plausible
on its face.”

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)

(citing Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007)).

“A

case has ‘facial plausibility’ when plaintiff pleads factual
content that allows the court to draw a reasonable inference that
the defendant is liable for the misconduct alleged.”

Id.

“Where

a complaint pleads facts that are merely consistent with a
defendant’s liability, it stops short of the line between
possibility and plausibility of entitlement to relief.”
(internal quotation marks omitted).

Id.

In considering the adequacy

of pleadings, a court must take as true the factual allegations
in the plaintiff’s pleadings and must make all reasonable
inferences in favor of the plaintiff.

Rivera v. Rhode Island,

402 F.3d 27, 33 (1st Cir. 2005).
A. The Federal Civil RICO Claim (Count II)
The first question is whether the RICO claim is barred by
the statute of limitations.

A “civil RICO claim is subject to a

four-year statute of limitations.”
F.3d 41, 44 (1st Cir. 2000).

Lares Group, II v. Tobin, 221

The First Circuit applies “‘an

injury discovery accrual rule starting the clock when a plaintiff
knew or should have known of his injury.’” Id. (quoting Rotella
v. Wood, 528 U.S. 549 (2000)).

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Ms. Matt alleges she was injured as a result of the HSBC
Defendants inducing her “to sign the mortgage contract based upon
false assertions by Northeast.”

Compl. ¶ 131.

After offering

her one interest rate and required monthly payment, Northeast
Mortgage Company asked Ms. Matt to sign loan documents presenting
a higher interest rate and larger required monthly payments.
During the signing of the documents, these changes were allegedly
never explained to Ms. Matt.

Compl. ¶ 29.

Ms. Matt claims she

was injured as a result of this unexplained, unexpected interest
rate increase; by the end of 2005, the loan was in default.
Ms. Matt knew or should have known of her injury more than
four years before she filed her complaint.

According to Ms.

Matt’s complaint, she knew by February of 2006 that she had been
injured by the increased interest rate.

She explains that in

February 2006, her loan had become several months delinquent, and
she indicates that shortly thereafter she asked “the bank[] to
honor the original interest and payment amounts of the mortgage
contract.”

Compl. ¶ 31.

Thus, according to her own allegations,

by February of 2006, more than four years before she filed her
complaint on September 23, 2010, Ms. Matt knew of her injury.
Ms. Matt does not deny that she knew of the interest rate
increase in February 2006.

Instead, she argues that because she

“only recently discovered . . . . that an enterprise existed,”
her RICO claim is not time-barred.

Opp’n at 9.

However, the

First Circuit has adopted “the injury discovery rule” under which
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“‘discovery of the injury, not discovery of the other elements of
a claim, is what starts the clock.’”

Lares Group, II v. Tobin,

221 F.3d 41, 44 (1st Cir. 2000) (quoting Rotella v. Wood, 528
U.S. 549, 555 (2000)).

Consequently, Ms. Matt’s argument must

fail, and the motion to dismiss the RICO claim is allowed.
B. The state-law claims
The next question is whether the dismissal of the RICO claim
requires the dismissal of the state-law claims due to a lack of
subject matter jurisdiction.
Under the federal statute governing diversity jurisdiction,
28 U.S.C. § 1332, federal courts have original jurisdiction of
all civil actions between citizens of different states where the
amount in controversy exceeds $75,000.

See 28 U.S.C. § 1332(a).

Complete diversity between all plaintiffs and all defendants is
required.

Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89 (2005).

The “time-of-filing rule,” which “measures all challenges to
subject-matter jurisdiction premised upon diversity of
citizenship against the state of facts that existed at the time
of filing,” is “hornbook law . . . taught to first-year law
students in any basic course on federal civil procedure.”

Grupo

Dataflux v. Atlas Global Grp. L.P., 541 U.S. 567, 570-71 (2004).
Still, it is not without exception.

The dismissal of a party

resulting in complete diversity has “long been an exception to
the time-of-filing rule.”

Id. at 572.

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In Caterpillar Inc. v. Lewis, 519 U.S. 61 (1996), complete
diversity had been lacking at the time the case was brought to
federal court but was later created when the diversity-destroying
defendant settled out of the case and was dismissed before trial.
The Court held that the dismissal of the non-diverse party cured
the initial jurisdictional defect.

See id. at 73 (“The

jurisdictional defect was cured, i.e., complete diversity was
established before the trial commenced.”).

In Grupo, the court

elaborated on Caterpillar:
The sum of Caterpillar's jurisdictional analysis was an
approving acknowledgment of Lewis's admission that
there was "complete diversity, and therefore federal
subject-matter jurisdiction, at the time of trial and
judgment." 519 U.S., at 73, 117 S.Ct. 467. The failure
to explain why this solved the problem was not an
oversight, because there was nothing novel to explain.
The postsettlement dismissal of the
diversity-destroying defendant cured the jurisdictional
defect.
Id.

Thus, under Grupo and Caterpillar, where complete diversity

of parties is lacking at the time a case is brought to federal
court but is created before trial when all non-diverse defendants
settle and are dismissed, the time-of-filing rule yields to a
well-established exception: a lack of diversity at the time of
filing can be cured by a post-settlement dismissal of non-diverse
parties.2

See In re Olympic Mills Corp., 477 F.3d 1, 12 n.10

2

While Wright and Miller note that a "corollary of the
general rule that diversity is determined as of commencement is
that if diversity of citizenship did not exist when the action
was commenced, the courts generally are in agreement that it
cannot be created by a later change of domicile by one of the
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(1st Cir. 2007)(noting that dismissal of a non-diverse party
pursuant to settlement can cure a jurisdictional defect.)

In a

similar case, the Sixth Circuit considered “whether [an] original
defective allegation of federal question [jurisdiction] can be
corrected by a subsequent happenstance creation of diversity
jurisdiction” and concluded it can.

AmSouth Bank v. Dale, 386

F.3d 763, 778-79 (6th Cir. 2004)(relying on Grupo and
Caterpillar).
Here, subject matter jurisdiction was initially alleged on
the basis of a federal question (arising under the civil RICO
statute), but that jurisdictional support has crumbled after the
dismissal of the federal RICO claim.

Although Ms. Matt’s

complaint also alleged diversity jurisdiction, complete diversity
was lacking at the time she filed her complaint because Ms. Matt
and two of the original defendants, Stanton & Davis and Harmon
Law Offices, P.C., are all from Massachusetts.3

Nonetheless,

after HBSC Defendants filed their motion to dismiss, the nondiverse Massachusetts defendants were dismissed, pursuant to a

parties or some other potentially diversity-creating event," they
acknowledge four sentences later that "a defect in diversity in a
multiple party action need not lead to dismissal" and go on to
observe that the dismissal of a non-diverse party under Rule 21
can cure a lack of diversity. 13E C. Wright, A. Miller, & E.
Cooper, Federal Practice and Procedure § 3608 (3d ed.2001).
3

Ms. Matt’s allegation that the amount in controversy
exceeded $75,000 has not been contested.
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settlement, under Rule 41(a)(1)(ii).

See Joint Stipulation of

Voluntary Dismissal of Claims Against Defs. Stanton & Davis and
Harmon Law Offices, P.C., Aug. 11, 2011, ECF No. 84.

Just as a

Caterpillar morphs into a butterfly, so does the federal question
morph into diversity.

Thus this court retains subject matter

jurisdiction over the state-law claims.

Because HSBC Defendants

did not address the merits of the state-law claims in their
motion to dismiss, and instead argued for dismissal due to a lack
of subject matter jurisdiction, their motion to dismiss those
claims is denied.
ORDER
HSBC Defendants’ motion to dismiss (Docket No. 28) is
ALLOWED IN PART and DENIED IN PART.

The motion to dismiss is

ALLOWED with respect to Count II, the civil RICO claim, but is
DENIED with respect to all other counts.

/s/ Patti B. Saris
PATTI B. SARIS
United States District Judge

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