CAPONEGRO v. THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT et al

Filing 61

MEMORANDUM OPINION. Signed by Judge Kevin McNulty on 5/18/17. (sr, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
ARTHUR B. CAPONEGRO,
Civ. No. 15-cv-3431 (KM) (MAR)

Plaintiff,
V.

MEMORANDUM OPINION

THE UNITED STATES DEPARTMENT
OF HOUSING AND URBAN
DEVELOPMENT, FIRST NATIONAL
BANK OF LAYTON, AND JOHN DOES
1—10,
Defendants.

KEVIN MCNULTY, U.S.D.J.:
I.

Introduction
The plaintiff, Arthur B. Caponegro (“Caponegro”), brought this action

against the defendants, the United States Department of Housing and Urban
Development (“HUD”) and First National Bank of Layton (“FNBL”), in
connection with a “reverse mortgage” transaction that Caponegro entered into
with FNBL. On August 16, 2016, Caponegro filed a four-count amended
complaint (ECF no. 33, referred to hereinafter as the “Complaint” and cited as

1

On its website, HUD explains reverse mortgages as follows:
A reverse mortgage is a special type of home loan that lets you convert a
portion of the equity in your home into cash. The equity that you built up
over years of making mortgage payments can be paid to you. However,
unlike a traditional home equity loan or second mortgage, [Home Equity
Conversion Mortgage program (“HECM”)] borrowers do not have to repay
the HECM loan until the borrowers no longer use the home as their
principal residence or fail to meet the obligations of the mortgage.

https: / / portal.hud. gov/ hudportal/ HUD?src /program_offices/housing/ sfh/hecm/rm
topten.
1

2
“Compi.”). Only Counts 1 and 4 appear to assert claims against FNBL. Count
1 is a claim for breach of contract, and Count 4 is a claim for negligence. In
Count 1, the Complaint also presents allegations that sound in fraud, alleging
that FNBL made misrepresentations and that it falsified documents and forged
Caponegro’s signature. Now before the Court is FNBL’s motion, pursuant to
3
Fed. R. Civ. P. 12(b)(6), to dismiss the Complaint for failure to state a claim.
For the reasons stated below, FNBL’s motion to dismiss (ECF no. 41) is
GRANTED.
II.

Standard on a Motion to Dismiss
FNBL has moved to dismiss the Complaint for failure to state a claim,

pursuant to Fed. R. Civ. P. 12(b)(6). Rule 12(b)(6) provides for the dismissal of
a complaint, in whole or in part, if it fails to state a claim upon which relief can
be granted. The defendant, as the moving party, bears the burden of showing
that no claim has been stated. Hedges v. United States, 404 F.3d 744, 750 (3d
Cir. 2005). In deciding a Rule 12(b)(6) motion, a court must take the allegations
of the complaint as true and draw reasonable inferences in the light most
favorable to the plaintiff. Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d
Cir. 2008) (traditional “reasonable inferences” principle not undermined by
Twombly, see infra).
Federal Rule of Civil Procedure 8(a) does not require that a complaint
contain detailed factual allegations. Nevertheless, “a plaintiff’s obligation to
provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will
Counts 2 and 3 of the Complaint clearly pertain to HUD only. Count 2 is titled
“HUD’s Contravention of the Anti-Displacement Provision of the HECM Statute is
Arbitrary & Capricious or Otherwise not in Accordance with Law and Exceeded HUD’s
Statutory Authority in Violation of § 706(2) of the APA.” (Compi. ¶j 72—81) Count 3 is
titled “HUD has failed to take immediate action necessary to provide Lenders with
funds to which they are entitled, in violation of Section 706(1) of the Administrative
Procedure Act.” (Compl. ¶j 82—85)
As of January 31, 2017, HUD stated that it has not been properly served
pursuant to Fed. R. Civ. P. 4(i) and takes no position on FNBL’s motion to dismiss.
(Letter, ECF no. 44)
2

2

not do.” Bell Ati. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, the
complaint’s factual allegations must be sufficient to raise a plaintiff’s right to
relief above a speculative level, so that a claim is “plausible on its face.” Id. at
570; see also Umlcznd v. PLANCO Fin. Serv., Inc., 542 F.3d 59, 64 (3d Cir. 2008).
That facial-plausibility standard is met “when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (citing Twombly, 550 U.S. at 556). While “[t]he plausibility standard
is not akin to a ‘probability requirement’.

.

.

it asks for more than a sheer

possibility.” Iqbal, 556 U.S. at 678.
However, a plaintiff alleging fraud or mistake must meet a heightened
pleading standard under Federal Rule of Civil Procedure 9(b). Under Rule 9(b),
“[un alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b) (emphasis
added). As the Third Circuit has explained, “[a] plaintiff alleging fraud must
therefore support its allegations with all of the essential factual background
that would accompany the first paragraph of any newspaper story—that is, the
who, what, when, where and how of the events at issue.” U.S. ex rel. Moore &
Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 307 (3d Cir. 2016)
(citing In re Rockefeller Ctr. Props., Inc. Securities Litig., 311 F.3d 198, 217 (3d
Cir. 2002)) (citation and quotation marks omitted). In other words, a plaintiff
may satisfy this requirement by pleading “the date, time and place” of the
alleged fraud or deception, or by “otherwise inject[ing] precision or some
measure of substantiation” into the allegation. Frederico v. Home Depot, 507
F.3d 188, 200 (3d Cir. 2007) (citing Lum u. Bank of Am., 361 F.3d 217, 224 (3d
Cir. 2004)). Additionally, to survive a motion to dismiss, plaintiffs must also
allege “who made a misrepresentation to whom and the general content of the
misrepresentation.” Gray v. Bayer Corp., No.Civ.A.08—4716, 2010 WL 1375329,
at *3 (D.N.J. Mar. 31, 2010) (citing Lum, 361 F.3d at 224).

3

The heightened specificity required by Rule 9(b) extends to the pleading
of all claims that “sound in fraud.” See Giercyk v. Nat’l Union Fire Ins. Co. of
Pittsburgh, No. 13-6272, 2015 WL7871165, at*2 (D.N.J. Dec. 4,2015);
Mladenov v. Wegmans Food Markets, Inc., 124 F. Supp. 3d 360, 372 (D.N.J.
2015). This includes Caponegro’s claims alleging misrepresentation and
falsification of documents. See Travelers Indem. Co. v. Cephalon, Inc., 620 F.
App’x 82, 85, n.3 (3d Cir. 2015) (affirming Rule 9(b) dismissal of claims for
intentional misrepresentation, negligent misrepresentation, and unjust
enrichment).
Where a plaintiff is proceeding pro se, the complaint is “to be liberally
construed,” and, “however inartfully pleaded, must be held to less stringent
standards than formal pleadings drafted by lawyers.” Erickson v. Pardus, 551
U.s. 89, 93-94 (2007). Nevertheless, “pro se litigants still must allege sufficient
facts in their complaints to support a claim.” Mala v. Crown Bay Marina, Inc.,
704 F.3d 239, 245 (3d Cir. 2013). “While a litigant’s pro se status requires a
court to construe the allegations in the complaint liberally, a litigant is not
absolved from complying with Twombly and the federal pleading requirements
merely because s/he proceeds pro

Se.”

Thakar v. Tan, 372 F. Appx 325, 328

(3d Cir. 2010) (citation omitted). Pro se plaintiffs are also not exempt from
meeting the heightened pleading requirements of Rule 9(b) when alleging
claims that sound in fraud. See Kowaisky v. Deutsche Bank Nat’l Trust Co., No.
14-07856 (CCC)(JBC), 2015 WL 5770523, at *9 (D.N.J. Sept. 30, 2015).
At the time Caponegro filed the Complaint, he was represented by
counsel, Kenneth C. Marano, Esq., but by the time he filed his opposition to
FNBL’s motion to dismiss, he was proceeding pro

Se.

As of May 11, 2017,

Caponegro is once again represented by counsel, Toni Belford Damiano, Esq.
(Notice of Appearance, ECF no. 57) Because Caponegro was represented by
counsel at the time he filed the Complaint, the Complaint is not entitled to the
more forgiving standards applied to pro se pleadings. However, this makes little

4

difference in this case because, even if construed liberally, the Complaint fails
to state a claim.

The Complaint

III.

For purposes of this motion to dismiss, the allegations of the Complaint
are assumed to be true. Although the allegations suffer from insufficient
clarity, I have attempted to make sense of them.
The Complaint alleges that Caponegro owns and resides at 513
Winterburn Grove, Cliffside Park, New Jersey. (Compi.

¶

7) On or about July

23, 2012, he entered into a “reverse mortgage” transaction with FNBL in the
amount of $400,500. (See id.

¶J

6 1—65) Caponegro never received financial

counseling regarding his reverse mortgage, which he alleges was a failure to
meet the requirements of 12 U.S.C.

§

4
1715z-20. As a result, “Defendants

The section, entitled “Insurance of home equity conversion mortgages for elderly
homeowners,” authorizes HUD to:
4

to carry out a program of mortgage insurance designed-(1) to meet the special needs of elderly homeowners by reducing
the effect of the economic hardship caused by the increasing costs
of meeting health, housing, and subsistence needs at a time of
reduced income, through the insurance of home equity conversion
mortgages to permit the conversion of a portion of accumulated
home equity into liquid assets; and
(2) to encourage and increase the involvement of mortgagees and
participants in the mortgage markets in the making and servicing
of home equity conversion mortgages for elderly homeowners.
12 U.S.C. § 1715z-20(a).
Among the criteria “[tb be eligible for insurance under the section, a mortgage
has received adequate
shall.
have been executed by a mortgagor who.
counseling, as provided in subsection (1), by sri independent third party.” Id. § 1715z20(d)(2)(B). Further subsection (f) states that:
.

.

.

.

The Secretary shall provide or cause to be provided adequate counseling
for the mortgagor, as described in subsection (d)(2)(B). Such counseling
shall be provided by counselors that meet qualification standards and
The protocols shall require a
follow uniform counseling protocols.
qualified counselor to discuss with each mortgagor information which
shall include.. the fmancial implications of entering into a home equity
The Secretary may, in lieu of providing the
conversion mortgage.
5
.

.

.

.

.

.

.

breached the contract entered into by Plaintiff.” (Id.

¶ 63) Caponegro relied

upon “Defendant’s misrepresentation” to his detriment by not having been
advised about the nature of the loan and its consequences to his home
ownership. (Id.

¶ 64)

Caponegro alleges that FNBL’s sale of the ownership interest in the loan
to Wells Fargo Bank, N.A., “on or before the Trust Closing Date of August 30,
2012,.

.

.

constitute[d] a Breach-separation of the Note and Mortgage.” (Id.

¶

66) Allegedly, “Defendant breached its obligations under the contract with
Plaintiff by splitting the Note and Mortgage, a condition precedent.
voiding the contract.” (Id.

.

.

thereby

¶ 68)

Caponegro further alleges that “Defendant falsified the original
document, and forged Plaintiff’s signature encumbering the property for the
amount of $862,500 at a 2.748% interest rate.” (IcL

¶ 67)5

consumer education required by this subsection, adopt alternative
approaches to consumer education that may be developed as a result of
such consultations, but only if the alternative approaches provide all of
the information specified in this subsection.
Id.

§ 1715z-20(f).

Pursuant to the statute, “The Secretary shall require each mortgagee of a
at the
mortgage insured under this section to make available to the homeowner.
time of the loan application, a written list of the names and addresses of third-party
information sources who are approved by the Secretary as responsible and able to
provide the information required by subsection (f).” Id. § 1715z-20(e)(1).
.

.

Although not relevant to FNBL’s motion to dismiss, I note that Caponegro
alleges generally that HUD has failed to use its “broad statutory powers to prevent the
displacement of Plaintiff from his home pending a decision on the merits of [his] case.”
(Id. ¶ 29) Caponegro also alleges that his home is worth less than the reverse mortgage
loan, making his property “difficult to sell and impossible to refinance.” (Id. ¶j 39 40)
This state of affairs is allegedly due to a change in HUD’s interpretation of the HECM
program. HUD initially treated loans obtained through the HECM Program as nonrecourse loans. Then at some point in 2008 it began to treat these loans—
prospectively and retroactively—as recourse loans. (See id. ¶ 36) He says that he “is
facing foreclosure and eviction from his family homes due to Defendant’s failure to
protect him from displacement.” (Id. ¶ 58)
—

6

Analysis

IV.

I start with a general observation. At many points in the Complaint,
references to the defendants are ambiguous. The Complaint sometimes refers
to “Defendant” or “Defendant[]s,” without further identifying which of the two
named defendants is intended. It is not always possible to confidently infer
against which of the defendants an allegation is directed.
A plaintiff must “specify which defendants performed which acts.” Zuniga
v. Am. Home Mortg., No. 14-CV-2973 (KM), 2016 WL 886214, at *2 (D.N.J. Mar.
7, 2016); see also Galicki v. New Jersey, No. 14-169 (JLL), 2015 WL 3970297,
at *2 (D.N.J. June 29, 2015) (Rule 8 is not satisfied where a complaint
“provide[s] only conclusory allegations against Defendants as a group”); Trzle T
Constr., L.L.C. v. Township of W. MiVord, No. 14-2522 (JLL), 2014 WL 2624764,
at *4 (D.N.J. June 11, 2014) (Rule 8 is not satisfied where a complaint
“lump[ed] all Defendants together, failing to put Defendants on notice of their
own alleged wrongdoing”).
If Caponegro chooses to file an amended complaint, he must identify
more clearly which defendants are alleged to be responsible for each action and
against which defendants each count is asserted.
I now proceed to analyze the sufficiency of the allegations in Counts 1
and 4.
A. Fraud/Breach of Contract Claim (Count 1)
As to Count 1, FNBL contends that Caponegro has failed to meet the
heightened pleading standard for fraud and related claims under Rule 9(b). I
agree. Under Rule 9(b), a plaintiff must state the “who, what, when, where, and
how” of the fraud they allege. The Complaint does not satisfy this requirement.
1.

Forgery Allegations

With regard to the alleged forgery, Caponegro alleges only that
“Defendant falsified the original document, and forged Plaintiff’s signature
encumbering the property for the amount of $862,500 at a 2.748% interest
rate.” (Id.

¶

67) Caponegro’s allegations fail to specify exactly what document
7

was allegedly forged, when it was forged, how he knows the document was
forged, and the date on which he received the forged documents. Even if
defendants have superior knowledge of the underlying facts, Caponegro must
alleged those facts of which he is aware, in order to “otherwise inject precision
or some measure of substantiation” into the fraud allegation. See Frederico v.
Home Depot, 507 F.3d 188, 200 (3d Cir. 2007) (citing Lum v. Bank of Am., 361
F.3d 217, 224 (3d Cir. 2004)). Caponegro should, at the very least, allege what
he learned when he discovered the alleged fraud. Yet, he does not plead such
facts. Caponegro’s forgery-based fraud allegation thus fails to satisfy the
requirements of Rule 9(b).
Misrepresentation Allegations

2.

The Complaint similarly lacks the required specificity with regard to the
alleged misrepresentation resulting from one or both defendants’ failure to
provide financial counseling to Caponegro. (See Compi.

¶

64)

To state a claim for fraudulent concealment or intentional
misrepresentation, a plaintiff must allege: “(1) a material misrepresentation of a
presently existing or past fact; (2) knowledge or belief by the defendant of its
falsity; (3) an intention that the other person rely on it; (4) reasonable reliance
thereon by the other person; and (5) resulting damages.” Donnelly v. Option One
Mortg. Corp., No. CIV.A. 11-7019 ES, 2014 WL 1266209, at *11 (D.N.J. Mar.
26, 2014); Arcand v. Brother Int’l Corp., 673 F. Supp. 2d 282, 305 (D.N.J.
2009),
Here, Caponegro has not alleged particular facts to satisfy these
elements. What information did FNBL conceal from Caponegro? Was there any
misrepresentation aside from the general alleged failure to ensure mortgage
related counseling? The Complaint states only that Caponegro “never received
counseling.” (Compl.

¶

7) The Complaint does not allege that FNBL played any

role in any such failure. The cited regulation does not require a bank to provide
counseling, but only to supply a list of third parties from whom such
counseling could be had. But the Complaint does not even allege that FNBL
8

failed to provide such information regarding opportunities to obtain
6
counseling. Nor does it allege that FNBL intended Caponegro to rely on any
omission, that Caponegro in fact reasonably relied on the omission, or what
that omission consisted of.
Further, where a defendant is alleged to have fraudulently concealed
information, “New Jersey courts will not imply a duty to disclose.” Lightning
Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1185 (3d Cir. 1993). “The question of
whether there is a duty to disclose, constituting a fraudulent concealment, is a
matter of law.” Arcand, 673 F. Supp. 2d at 305 (citing United Jersey Bank v.
Kensey, 306 N.J. Super. 540, 551, 704 A.2d 38 (Law. Div. 1997)), aff’d, 246
F.3d 289 (3d Cir. 2001). The duty to disclose arises in the following three types
of relationships:
(1) fiduciary relationships, such as principal and agent, client and
attorney, or beneficiary and trustee; (2) relationships where one
party expressly reposits trust in another party, or else from the
circumstances, such trust necessarily is implied; and (3)
relationships involving transactions so intrinsically fiduciary that a
degree of trust and confidence is required to protect the parties.
Id. (citing Lightning Lube, 4 F.3d at 1185; see Maertin v. Armstrong World
Industries, Inc., 241 F.Supp.2d 434, 461 (D.N.J. 2002)).
Regulations aside, the Complaint fails to allege facts that plausibly
establish a relationship that would give rise to a duty for FNBL to disclose
information to Caponegro by ensuring that he received counseling. As a general
rule, “[i]t would be anomalous to require a lender to ‘act as a fiduciary for
interests on the opposite side of the negotiating table.” Paradise Hotel Corp. v.
Bank of Nova Scotia, 842 F.2d 47, 53 (3d Cir. 1988) (internal quotations
12 U.S.C. § 1715z-20 does not appear to impose any duty on the mortgagee to
provide the counseling. Rather, “[t]he Secretary shall require each mortgagee of a
mortgage insured under this section to make available to the homeowner. . . at the
time of the loan application, a written list of the names and addresses of third-party
information sources who are approved by the Secretary as responsible and able to
provide the information required by subsection (1).” Id. § 1715z-20(e)(1). The Complaint
does not allege that FNBL failed to provide such a list of approved third-party
information sources.
6

9

omitted). Further, New Jersey courts apply “a general presumption that the
relationship between lenders and borrowers is conducted at arms-length, and
the parties are each acting in their own interest.” United Jersey Bank v.
Kensey, 306 N.J. Super. 540, 553, 704 A.2d 38, 45 (App. Div. 1997) (internal
quotations omitted). Nothing in the Complaint alleges facts that would
undermine that presumption here.
3.

Breach of Contract

It is not clear whether the Complaint was intended to assert an
independent breach of contract claim aside from the fraud/misrepresentation
claims. If so, such a contract claim would fail to satisfy the minimal standards
of Rule 8(a). To state a claim for breach of contract, a plaintiff “must allege (1)
7
a contract between the parties; (2) a breach of that contract; (3) damages
flowing there from; and (4) that the party stating the claim performed its own
contractual obligations.” Frederico v. Home Depot, 507 F.3d 188, 203 (3d Cir.
2007). The Complaint alleges none of these things. Because the Complaint fails
to meet the minimal obligation of identifying the contractual provision it alleges
FNBL breached, it is impossible to determine whether “splitting the Note and
Mortgage” was a breach.
Accordingly, Count 1 of the Complaint is dismissed.
B. Negligence Claim (Count 4)
In Count 4, Caponegro alleges that FNBL owed him a “duty to exercise
reasonable care and skill to comply with 12 U.S.C.

§

1715z-20(i),” and that

“Defendants’ actions and ongoing behavior are and have been in direct
violation of 12 U.S.C.
se.” (Compi.

¶

§

1715z-20(i) and accordingly constitute negligence per

88)

FNBL appears to construe the fraud and misrepresentation allegations as the
basis for the breach of contract claim. It therefore argues that the entire claim should
be subject to Rule 9(b)’s heightened pleading standard. (Def. Mot. 6, ECF no. 41) It
matters little, because I find that the claim, on its face, does not even meet the
ordinary Rule 8(a) standard, see infra. Further, in his opposition brief, Caponegro does
not address any separate breach of contract claim.
7

10

The Complaint does not plausibly allege negligence
statute or regulation may provide the basis for negligence

per Se.
per

“Violation of a

se when the

following three elements are present: ‘1) the statute or regulation must clearly
apply to the conduct of the defendant; 2) the defendant must violate the statute
or regulation; and 3) the violation of the statute must proximately cause the
plaintiffs injuries.” Vassallo v. Bank of N.Y., No. CV 15-3227, 2016 WL
1394436, at *4 (D.N.J. Apr. 8, 2016) (quoting Cecile Indus., Inc. v. United
States, 793 F.2d 97, 99 (3d Cir. 1986)).
At the very least, the Complaint does not satisfy the first element of
negligence per se because section 1715z-20(i) does not clearly apply to the
conduct of FNBL. That subsection mandates that HUD shall take any action
8
necessary to protect certain interests of reverse mortgagors. It does not appear

8

The subsection, entitled “Protection of homeowner and lender,” provides that:
(1) Notwithstanding any other provision of law, and in order to further
the purposes of the program authorized in this section, the Secretary
shall take any action necessary-(A) to provide any mortgagor under this section with funds to
which the mortgagor is entitled under the insured mortgage or
ancillary contracts but that the mortgagor has not received
because of the default of the party responsible for payment;
(B) to obtain repayment of disbursements provided under
subparagraph (A) from any source; and
(C) to provide any mortgagee under this section with funds not to
exceed the limitations in subsection (g) to which the mortgagee is
entitled under the terms of the insured mortgage or ancillary
contracts authorized in this section.
(2) Actions under paragraph (1) may include-(A) disbursing funds to the mortgagor or mortgagee from the
Mutual Mortgage Insurance Fund;
(B) accepting an assignment of the insured mortgage
notwithstanding that the mortgagor is not in default under its
terms, and calculating the amount and making the payment of the
insurance claim on such assigned mortgage;
(C) requiring a subordinate mortgage from the mortgagor at any
time in order to secure repayments of any funds advanced or to be
advanced to the mortgagor;
11

to impose any obligation on a mortgagee, such as FNBL. Therefore, Caponegro
has failed to plausibly allege that FNBL has violated this section, and
consequently cannot plausibly allege negligence per Se.
Further, as FNBL has argued in its brief, to the extent that Caponegro
intends to assert a negligence claim based on a duty arising from a contractual
relationship, the economic loss doctrine precludes recovery under a tort cause
of action. Saltiel v. GSI Consultants, Inc., 170 N.J. 297, 316, 788 A.2d 268, 280
(2002) (“Under New Jersey law, a tort remedy does not arise from a contractual
relationship unless the breaching party owes an independent duty imposed by
law.”) For the reasons stated in Section IV.A.2, I am “unable to discern,” under
the facts as alleged in the Complaint, “any duty owed to the plaintiff [by FNBL]
that is independent of the duties that arose under the contract.” See id.
Accordingly, Count 4 of the Complaint is dismissed.

V.

CONCLUSION
For the reasons set forth above, I will grant the FNBL’s motion to dismiss

the Complaint. This dismissal is without prejudice to the filing of a properly
supported motion to amend, pursuant to Fed. R. Civ. P. 15, attaching a
proposed amended complaint, within 30 days. An appropriate Order follows.

Dated: May 18, 2017

D.J.
5
HON. KEVIN MCNULT

(D) requiring a subrogation to the Secretary of the rights of any
parties to the transaction against any defaulting parties; and
(E) imposing premium charges.
12 U.S.C. § 1715z-20(i).
12