JOHNSON v. NOVASTAR MORTGAGE, INC. et al
Filing
76
OPINION. Signed by Judge Jerome B. Simandle on 9/29/2011. (TH, )
THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
BARBARA JOHNSON,
HONORABLE JEROME B. SIMANDLE
Plaintiff,
Civil No. 09-1799 (JBS/KMW)
v.
NOVASTAR MORTGAGE, INC., et
al.,
OPINION
Defendants.
APPEARANCES:
Matthew Benjamin Weisberg, Esq.
PROCHNIAK WEISBERG, PC
7 South Morton Avenue
Morton, PA 19070
Counsel for Plaintiff Barbara Johnson
Peter J. Leyh, Esq.
BRAVERMAN KASEY P.C.
One Liberty Place, 56th Floor
1650 Market Street
Philadelphia, PA 19103
Counsel for NovaStar Mortgage, Inc.
SIMANDLE, District Judge:
I.
INTRODUCTION
This matter is before the Court on the motion for summary
judgment of Defendant NovaStar Mortgage, Inc.
[Docket Item 67.]
Plaintiff Barbara Johnson alleges a foreclosure rescue scam in
which she was lured into two sale transactions of her house that
she believed would keep her in her home, but resulted in her
losing her home to foreclosure and being evicted.
This Court
previously denied Defendant NovaStar’s motion to dismiss for lack
of standing and for failure to state a claim.
See Johnson v.
NovaStar Mortgage, Inc., 698 F. Supp. 2d 463 (D.N.J. 2010).
[Docket Items 35 & 36.]
Defendant NovaStar now moves for summary
judgment against Plaintiff’s claims for rescission under the
Truth-in-Lending Act (“TILA”) and for relief under the New Jersey
Consumer Fraud Act (“CFA”) and for civil conspiracy.
Defendant
argues that Plaintiff’s right to rescission under the TILA ended
in 2008 when her house was sold in a sheriff’s sale, and that
Plaintiff fails to point to an issue of material fact regarding
Defendant NovaStar’s liability under the CFA, or conspiracy
liability.
For the reasons stated below, the Court will grant
Defendant’s motion because the Court concludes that Plaintiff’s
right to rescission under TILA expired at the sale of Plaintiff’s
house, and further that Plaintiff fails to point to a dispute of
fact regarding Defendant’s conspirator or vicarious liability for
the acts of the other Defendants in this action.
II.
BACKGROUND
The following facts are taken from the Parties’ statements
of undisputed facts that are properly supported in the record or
not otherwise disputed on this motion.
Where facts are disputed
between the parties, the Court will identify the dispute.
2
Plaintiff originally purchased her house in Sicklerville,
New Jersey, in the mid-1990s.
Def. Ex. C, Johnson Dep. at 13:2-
19; Def. Ex. K, Dallah Dep. at 27:19-28:2.
Sometime in 2005,
Plaintiff fell behind on her mortgage payments, because injuries
and other occupational disruptions prevented her from working as
a foster parent, which was her sole source of income.
Dep. at 15:4-21; Dallah Dep. at 19:18-23:8.
Johnson
Plaintiff learned
from a friend about Defendant Rick Mason, who did business as
Innovative Mortgage Solutions.
Johnson Dep. at 20:8-16.
Mason
recommended that Plaintiff sell her house to her daughter,
Ravenda Dallah, in order to “cash out” the equity in the property
which she could then use to pay the new mortgage loan that Dallah
would obtain, eventually allowing Plaintiff to improve her own
credit score sufficient to allow her to repurchase the house in
her own name.
Id. at 20:17-21:21.
Plaintiff accepted Mason’s plan.
On June 7, 2005, Plaintiff
attended a closing with her daughter at Trinity Insurance
Abstract, LLC, at which lender New Century (not a party to the
instant action) closed a loan of $175,000 of which Plaintiff
received roughly $20,000.
Settlement Sheet.
to her daughter.
Id. 21:22-24:24; Def. Ex. D, HUD-1
At the closing, Plaintiff signed over the deed
Def. Ex. E, 2005 Deed.
After the sale, Plaintiff remained in the home with her
daughter.
See Dallah Dep. 40:9-23.
3
Mason had told Plaintiff
that after approximately six months of paying the new mortgage on
the house, Plaintiff would be able to refinance the mortgage in
her own name.
Johnson Dep. 25:11-14.
However, by the time the
$20,000 from the 2005 transaction ran out, and Plaintiff was
again unable to make mortgage payments, she had not yet
refinanced the house in her own name.
Id. 26:3-23.
As a result,
Plaintiff reached out again to Mason, who proposed yet another
“sale,” this time to an “investor,” named Terence Ward, once
again in anticipation of Plaintiff eventually repurchasing the
home in her own name.
Id. 26:21-29:13.
Prior to the second
transaction, Mason promised Johnson that Ward would sign a letter
promising to sell the house back to Plaintiff at some point in
the future, but Mason never made good on this promise.
32:25-33:4.
Id.
As with the first transaction, the parties to the
2006 transaction anticipated that Plaintiff would pay the
mortgage payments on the new loan.
Id. 30:1-22, 35:11-13.
Innovative (presumably through Mason) represented to Plaintiff
that if she successfully made payments on the new mortgage for
“three to four months,” then Innovative would refinance the
mortgage in Plaintiff’s name.
Id. 35:23-36:1.
The transaction took place on June 23, 2006, with Dallah
“selling” the house to Ward for a contract sale price of
$238,000.
Def. Ex. F, HUD-1 Settlement Sheet.
Defendant
Innovative Mortgage Solutions was listed as the mortgage lender
4
in the transaction, Ravenda Dallah as the seller, and Terence
Ward as the borrower.
Id.
A down payment of $12,150 from the
borrower is listed on the settlement sheet.
Id.
Plaintiff received cash from the transaction sufficient to
allow her to make payments on the new mortgage for three to four
months, but the amount she received was considerably less than
the $43,421.94 listed as “Cash to seller” on the HUD-1 settlement
sheet.
Johnson Dep. 37:5-10; Dallah Dep. 59:3-60:6; Def. Ex. F.
Innovative later assigned the Ward loan to Defendant
NovaStar on July 5, 2006.
Ex. 1, Purchase Worksheet.
Def. Ex. I, Notice of Assignment; Pl.
Prior to purchasing the Ward loan
from Innovative, NovaStar took certain steps to verify the
identity of Ward, the borrower, and his ability to pay back the
mortgage, such as verifying his social security number and his
employment.
Pl. Ex. 7, Novalinq Conversation Log.
However,
NovaStar did not verify the source of the $12,150 down payment or
that it had been paid prior to purchasing the loan from
Innovative.
Id.; Pl. Ex. 9, Ward Loan Application.
The record is not entirely clear as to whether Plaintiff
initially sent her mortgage payments to Terence Ward, or directly
to NovaStar.
Dallah says that the payments were initially sent
to Ward, while Plaintiff only describes sending payments to
NovaStar.
Dallah Dep. 73:16-74:12; Johnson Dep. 42:8-23.
The
record is clear, however, that Plaintiff sent approximately nine
5
mortgage payments directly to NovaStar, the last being paid on
January 8, 2007.
Pl. Ex. 11.
Eventually, after Plaintiff
stopped paying the mortgage, NovaStar initiated foreclosure
proceedings, naming as defendants Terrence Ward and Ravenda
Dallah, but apparently not Plaintiff Barbara Johnson.
L, Indenture.
14, 2007.
Def. Ex.
A judgment of foreclosure was entered on November
Id.
On February 20, 2008, NovaStar purchased the
house at a sheriff’s sale.
house later in 2008.
Id.
Plaintiff was evicted from the
Def. Ex. M, March 18, 2008 Eviction Notice.
Plaintiff filed her Complaint in this matter on April 15,
2009 [Docket Item 1] and her Amended Complaint on June 22, 2009.
[Docket Item 8.]
Plaintiff’s Amended Complaint names as
defendants NovaStar Mortgage, Inc., and several others, including
Rick Mason, Terence Ward and Innovative Mortgage Solutions Inc.
In her Amended Complaint, Plaintiff alleges, inter alia, that
NovaStar was the mortgage lender that closed the loan on June 23,
2006; that Mason had a contact who was an employee of NovaStar
with whom Mason conspired to create an inflated appraisal of
Plaintiff’s house, and to ensure the closing “would proceed no
matter the ability or intent of Ward to make payments on the
property”; and that NovaStar received application and commitment
fees from the June 2006 Dallah/Ward transaction.
6
Am. Compl. ¶¶
29, 34, 35, 37.
After the close of discovery, the Court finds no
support for these allegations in the record on summary judgment.1
Defendant NovaStar moved to dismiss the Amended Complaint on
December 28, 2009. [Docket Item 31.]
The Court, assuming the
truth of the allegations in the Amended Complaint, denied the
motion, finding that Plaintiff had alleged the existence of an
equitable mortgage between Plaintiff and Defendant NovaStar, and
therefore stated a claim for rescission under the TILA and
damages under the CFA. [Docket Items 35 & 36.]
After the completion of discovery, Defendant NovaStar has
now moved for Summary Judgment.
[Docket Item 67.]
In addition
to filing opposition to Defendant’s motion, Plaintiff
subsequently filed a motion for leave to file a sur-reply to
Defendant’s motion.
[Docket Item 74.]
1
The Court will grant
With respect to whether any application and commitment
fees from the June 23, 2006 transaction were paid to NovaStar,
Plaintiff contends that evidence does support this allegation.
Pl.’s Resp. to Def.’s Statement of Material Facts Not in Dispute
¶ 19. However, the documentary evidence to which Plaintiff
points is not included in any of the documents submitted to the
Court. Therefore, the Court is unable to consider this
unsupported allegation as raising a dispute of fact, pursuant to
L. Civ. R. 56.1(a), which states in relevant part: “. . . The
opponent of summary judgment shall furnish, with its opposition
papers, a responsive statement of material facts, addressing each
paragraph of the movant’s statement, indicating agreement or
disagreement and, if not agreed, stating each material fact in
dispute and citing to the affidavits and other documents
submitted in connection with the motion; any material fact not
disputed shall be deemed undisputed for purposes of the summary
judgment motion . . . .” (emphasis added).
7
Plaintiff’s motion to for leave to file a sur-reply nunc pro
tunc, and has considered Plaintiff’s arguments contained therein.
III. DISCUSSION
A.
Standard of Review
Summary judgment is appropriate "if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law."
P. 56(a).
Fed. R. Civ.
A dispute is “genuine” if “the evidence is such that a
reasonable jury could return a verdict for the non-moving party.”
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
A
fact is "material" only if it might affect the outcome of the
suit under the applicable rule of law.
Id.
Disputes over
irrelevant or unnecessary facts will not preclude a grant of
summary judgment.
Id.
Summary judgment will not be denied based on mere
allegations or denials in the pleadings; instead, some evidence
must be produced to support a material fact.
Fed. R. Civ. P.
56(c)(1)(A); United States v. Premises Known as 717 S. Woodward
Street, Allentown, Pa., 2 F.3d 529, 533 (3d Cir. 1993).
The
nonmoving party must “do more than simply show that there is some
metaphysical doubt as to the material facts.”
Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986).
[Rule 56] mandates the entry of summary judgment,
after adequate time for discovery and upon motion,
8
against a party who fails to make a showing
sufficient to establish the existence of an element
essential to that party’s case, and on which that
party will bear the burden of proof at trial. In
such a situation, there can be “no genuine issue as
to any material fact,” since a complete failure of
proof concerning an essential element of the
nonmoving party’s case necessarily renders all other
facts immaterial.
Celotex, 477 U.S. at 323.
However, the Court will view any evidence in favor of the
nonmoving party and extend any reasonable favorable inferences to
be drawn from that evidence to that party.
526 U.S. 541, 552 (1999).
Hunt v. Cromartie,
See also Scott v. Harris, 550 U.S.
372, 378 (2007) (The district court must “view the facts and draw
reasonable inferences in the light most favorable to the party
opposing the summary judgment motion.”).
Procedurally, the
parties seeking and opposing summary judgment must comply with
the requirements for filing a statement of material facts not in
dispute and a response thereto, as set forth in L. Civ. R.
56.1(a).
B.
TILA Rescission Statute of Limitations
Defendant NovaStar first seeks summary judgment against
Plaintiff’s claim for rescission of the mortgage under TILA.
Defendant argues that, assuming, for the purposes of this motion
only, that an equitable mortgage existed between Plaintiff and
NovaStar, Plaintiff’s right to rescission expired after the house
9
was sold at the sheriff’s sale in February of 2008, more than one
year prior to Plaintiff’s initial Complaint in this action.
In support of this argument, Defendant points to the TILA
rescission statute of limitations, which states that where the
creditor does not make the required disclosures, the consumer’s
right to seek rescission “shall expire three years after the date
of consummation of the transaction or upon the sale of the
property, whichever occurs first . . . .”
15 U.S.C. § 1635(f).
Defendant argues that, under the plain language of this statute,
Plaintiff’s right to rescind her equitable mortgage expired in
February of 2008 when the house was sold in a sheriff’s sale.
Plaintiff argues in opposition that the February 2008
sheriff’s sale of Plaintiff’s house did not end Plaintiff’s right
to rescind the mortgage because Plaintiff Barbara Johnson, the
equitable owner of the house, was not named as a defendant in the
foreclosure action.
In support of her argument, Plaintiff points
to New Jersey Court Rule 4:64-1(b)(11), which governs the proper
contents of a mortgage foreclosure complaint.
According to the
rule, the foreclosure complaint was required to state
the names of all parties in interest whose
interest is subordinate or affected by the
mortgage foreclosure action and, for each
party, a description of the nature of the
interest, with sufficient particularity to give
the court and parties notice of the transaction
or occurrence on which the interest is based
including
recording
date
of
the
lien,
encumbrance,
or
instrument
creating
the
interest;
10
N.J.R. 4:64-1(b)(11).
Thus, Plaintiff argues, because Plaintiff
was not named in the foreclosure complaint, the foreclosure was
not proper and therefore Plaintiff’s right to rescission under
the TILA did not expire at the subsequent sheriff’s sale.
The Court can find no legal support for Plaintiff’s
interpretation of 15 U.S.C. § 1635(f).
The statute’s plain
language states that the right to rescission expires “upon the
sale of the property” without qualification.
As Defendant points
out, federal courts that have considered the issue have held that
a sheriff’s sale after foreclosure constitutes a “sale” under the
statute.
See Hintz v. JPMorgan Chase Bank, N.A., Civ. No. 10-
2825, 2011 WL 579339 * 5 (D. Minn. Feb. 8, 2011) (“the right to
rescind expired at the foreclosure sale”).
Whether or not the
foreclosure action leading to the sheriff’s sale complied in all
respects with the notice requirements of the New Jersey Court
Rules would not seem to undermine the crucial fact under the
statute that the property was sold more than a year prior to
Plaintiff’s Complaint providing notice that she was seeking
rescission.2
Consequently, the Court will grant summary judgment
2
The Court also notes that rescission under TILA would seem
to be an unavailable remedy in this action, as Plaintiff has not
demonstrated in the record any ability to tender payment on the
net proceeds she received under the loan, which is an additional
requirement for rescission under TILA. See Jobe v. Argent
Mortgage Co., LLC, 373 F. App’x 260, 262 (3d Cir. 2010) (“courts
have denied rescission where the borrowers were unable to tender
payment of the loan amount.”)
11
against Plaintiff’s TILA rescission claim against Defendant
NovaStar.
C.
Civil Conspiracy
Secondly, Defendant argues that summary judgment is
warranted against Plaintiff’s claim of civil conspiracy against
Defendant NovaStar.
In the Court’s March 15, 2010 Opinion, the
Court concluded that, based on the facts alleged in the Amended
Complaint, “Plaintiff has alleged specific facts to support her
claim that NovaStar, Mason, and Ward agreed to perpetrate their
fraudulent scheme.”
Johnson v. NovaStar, 698 F. Supp. 2d at 473.
Defendant argues that, after discovery, Plaintiff can point to no
evidence in the record raising a dispute of fact regarding such
an agreement between NovaStar and either Mason or Ward.
Plaintiff responds that there is evidence in the record that
NovaStar was aware of the scheme through indications that the
2006 Ward loan was irregular.
Specifically, Plaintiff claims
three categories of evidence support such a finding.
First,
Plaintiff points to evidence in the record demonstrating that
NovaStar agreed to purchase the mortgage from Innovative despite
the fact that NovaStar was unable to verify the source of Ward’s
down payment.
Second, Plaintiff points to evidence that NovaStar
was aware that the sale price of the house had increased from
$225,000 to $238,000 without any evidence of negotiation or
public listing of the house.
Third, Plaintiff points to evidence
12
that the seller (Dallah) would continue to reside in the property
after the sale.3
The Court concludes that no evidence in the record raises a
dispute of fact over whether Defendant NovaStar entered into an
agreement with Ward, Mason, or Innovative to achieve an unlawful
result, as required under New Jersey law for civil conspiracy
liability to attach.
As the Third Circuit has held, in New
Jersey,
[t]here are four elements to the tort of civil
conspiracy: (1) a combination of two or more
persons; (2) a real agreement or confederation
with a common design; (3) the existence of an
unlawful purpose, or of a lawful purpose to be
achieved by unlawful means; and (4) proof of
special damages.
Morganroth & Morganroth v. Norris, McLaughlin & Marcus, P.C., 331
F.3d 406, 414 (3d Cir. 2003).
The Court finds no evidence of an
agreement between NovaStar and any other party regarding
Plaintiff’s ownership of the house.
Indeed, the record bears no
evidence that NovaStar was aware of Plaintiff’s existence prior
to its purchase of the loan from Innovative.4
That NovaStar
3
While not raised specifically in this area of Plaintiff’s
opposition brief, the Court notes that elsewhere in Plaintiff’s
briefing, Plaintiff has also pointed to the fact that Plaintiff
herself paid the mortgage directly to Defendant NovaStar for a
period of time in the fall of 2006. The Court has, therefore,
also considered this evidence on this point.
4
That NovaStar later received payment on the Ward loan from
Plaintiff does not raise an issue of fact regarding whether
NovaStar knew about Plaintiff’s relationship to the loan prior to
purchasing the loan.
13
decided to purchase the loan without first seeing proof of Ward’s
down payment, and with some indication that the sale price
increased in the month prior to closing provides no proof of any
agreement between NovaStar and the other Defendants.
Further, the evidence is clear that NovaStar took steps to
attempt to verify the validity of the borrower’s identity, such
as calling and confirming his employment, which is inconsistent
with any conclusion that NovaStar had entered into an agreement
to commit mortgage fraud with the other Defendants in this
transaction.
The Court finds that no reasonable factfinder could
conclude, on the basis of this evidence, that an agreement to
achieve an unlawful purpose existed between NovaStar and the
other Defendants prior to NovaStar’s purchase of the loan from
Innovative in July of 2006.
Plaintiff additionally argues that, even in the absence of a
civil conspiracy, Defendant NovaStar is vicariously liable for
any wrongs committed by Innovative or Mason pursuant to the New
Jersey statutory holder rule, wherein the assignee of a consumer
contract is liable for the acts of the assignor.
See N.J. Stat.
Ann. § 17:16C-38.2 (“Any subsequent holder of a consumer note
shall be subject to all claims and defenses of the retail buyer
against the retail seller arising out of the transaction”).
The Court finds Plaintiff’s argument unpersuasive.
statutory holder rule does not apply to the 2006 mortgage
14
The
transaction, as Defendant points out, because the statute governs
retail installment contracts, limited to sales of goods or
services “having a cash price of $10,000 or less.”
Ann. § 17:16C-1(a).
N.J. Stat.
Thus, Plaintiff has not demonstrated that
Defendant NovaStar is vicariously liable for the allegedly
fraudulent acts of Innovative, Mason or Ward merely as a result
of the assignment of the loan.
The Court will, consequently,
grant summary judgment against Plaintiff’s claim of civil
conspiracy against Defendant NovaStar.
D.
New Jersey Consumer Fraud Act
Finally, Defendant NovaStar argues that summary judgment is
warranted against Plaintiff’s CFA claims.
Defendant argues that
the only “unlawful” act chargeable to NovaStar under the CFA is
NovaStar’s omission of statutory TILA notice to Plaintiff.
Additionally, Defendant argues, under the CFA, when the alleged
unlawful act is an omission, the plaintiff must prove defendant’s
knowledge or intent.
“[W]hen the alleged consumer fraud consists
of an omission, the plaintiff must show that the defendant acted
with knowledge, and intent is an essential element of the fraud.
Cox v. Sears Roebuck & Co., 138 N.J. 2, 18 (1994) (emphasis
original).
Thus, Defendant argues, to survive summary judgment,
Plaintiff must point to some evidence in the record tending to
prove Defendant’s knowledge and intent of the wrongful act, which
Plaintiff has failed to do.
15
Plaintiff responds to this argument by insisting that the
affirmative acts allegedly committed by Innovative, Mason and
Ward are chargeable to Defendant NovaStar as discussed, supra.
However, the Court has already concluded that Plaintiff’s
theories of civil conspiracy and vicarious liability do not
survive summary judgment.
Additionally, the Court agrees with
Defendant that to prove a CFA claim on the basis of an omission,
Plaintiff would be required to point to evidence of knowledge and
intent, which the Court agrees Plaintiff has not done on this
record.
For these reasons, therefore, the Court concludes that
summary judgment is warranted against Plaintiff’s CFA claim
against Defendant NovaStar.
IV.
CONCLUSION
For the foregoing reasons, the Court will grant Defendant
NovaStar’s motion for summary judgment.
The Court has concluded
that Plaintiff’s right to rescission under TILA expired after the
sale of the house, under the plain language of 15 U.S.C. §
1635(f).
Additionally, the Court has concluded that Plaintiff
has not pointed to a dispute of fact regarding the existence of
an agreement between Defendant NovaStar and the other Defendants
in this action, which therefore warrants the entry of summary
judgment as to Plaintiff’s civil conspiracy claim.
And finally,
because the only acts chargeable to Defendant NovaStar in this
16
action are its own, the Court concludes that summary judgment is
warranted as to Plaintiff’s CFA claim because there is no
evidence of knowledge or intent to omit any information to
Plaintiff in the Defendant’s 2006 purchase of the Ward Mortgage.
The Court will, therefore, enter summary judgment against all of
Plaintiff’s claims against Defendant NovaStar. The accompanying
Order shall be entered.
September 29, 2011
Date
s/ Jerome B. Simandle
JEROME B. SIMANDLE
United States District Judge
17
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