Plotch v. Wells Fargo Bank, N.A.
OPINION & ORDER granting 17 Defendant's Motion to Dismiss. Plaintiff is provided until 1/26/2018 to seek leave to amend his complaint. Ordered by Judge Nina Gershon on 1/8/2018. (Barrett, C)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
OPINION & ORDER
- against -
No. 17-CV-00309 (NG) (RER)
WELLS FARGO BANK, N.A.,
GERSHON, United States District Judge:
This case arises from two separate state foreclosure actions as to the same property located
at 387 Adelphi Street in Brooklyn (the “property”). 1 One of the foreclosure actions was instituted
by Wells Fargo Bank, N.A. (“Wells Fargo”) against Philip McKenzie.
The other, earlier
foreclosure action was commenced by a condominium board against Philip McKenzie for his
having failed to pay common charges on the property. Plaintiff, Adam Plotch, purchased the
property in the foreclosure action commenced by the condominium board, but was never a party
to the foreclosure action initiated by Wells Fargo. Plaintiff brings this federal action seeking
various forms of declaratory relief. Defendant has now moved to dismiss the complaint on three
grounds: (1) pursuant to the doctrine set forth in Younger v. Harris, 401 U.S. 37 (1971), the court
should abstain from exercising its jurisdiction over plaintiff’s claims; (2) plaintiff’s claims are
barred by collateral estoppel; and (3) plaintiff’s complaint fails to state a claim. For the reasons
Diversity jurisdiction exists here because plaintiff is a citizen of New York and defendant
is a citizen of South Dakota. In an action seeking a declaratory judgment, “the amount in
controversy is measured by the value of the object of the litigation,” which, here, exceeds $75,000.
Garanti Finansal Kiralama A.S. v. Aqua Marine & Trading Inc., 697 F.3d 59, 69 (2d Cir. 2012).
set forth below, defendant’s motion is granted, but plaintiff may move for leave to amend his
complaint to address the deficiencies.
The complaint alleges the following facts which, for purposes of this motion, are taken as
true. On July 23, 2001, the property was conveyed from Lazarine Quarless to Philip McKenzie.
On August 20, 2001, McKenzie executed a mortgage in the amount of $247,500 (“2001
Mortgage”) in favor of Wells Fargo. This mortgage was recorded in the New York City register.
On July 28, 2003, McKenzie executed another mortgage to Wells Fargo in the amount of $6,187.06
(“2003 Gap Mortgage”). Simultaneously with the execution of the 2003 Gap Mortgage, Wells
Fargo recorded a “Consolidated, Extension and Modification Agreement” to consolidate the 2001
Mortgage with the 2003 Gap Mortgage (“2003 CEMA”). The 2003 CEMA was in the amount of
$248,071.00. A copy of the 2003 CEMA was recorded in the New York City register on July 28,
2003. On July 26, 2005, McKenzie executed another mortgage on the property in the amount of
$101,088.51 in favor of Wells Fargo (“2005 Gap Mortgage”). The 2005 Gap Mortgage was
recorded in the New York City register on the same date. Simultaneously with the recording of
the 2005 Gap Mortgage, Wells Fargo recorded a second “Consolidated, Extension and
Modification Agreement” (the “2005 CEMA”). The 2005 CEMA states that “[t]he Consolidated
Note will supersede all terms, covenants, and provisions of the Notes,” and it was recorded in the
New York City register. Within the 2005 CEMA is a “Consolidated Mortgage” in the amount of
$342,000, which consolidates all of the above noted mortgages (“2005 Consolidated Mortgage”).
On October 31, 2012, plaintiff purchased the property for $100,000 at a foreclosure action
commenced by the condominium board as the result of McKenzie’s failure to pay common
charges. Compl. at ¶¶ 41-42. 2 On October 2, 2015, a referee’s deed transferring title to the
premises to plaintiff was recorded in the New York City register. Plaintiff alleges that the above
mortgages are defective in various ways. For example, some acknowledgment pages are devoid
of any identification as to the notary witnessing McKenzie’s purported signature. Others lack
McKenzie’s initials on pages of documents that require initials.
Plaintiff argues that, because the above mortgages were deficiently executed, Wells
Fargo’s interests “should be subordinate to the rights of Plaintiff.” Compl. at ¶ 59. Plaintiff seeks:
the cancellation of the 2005 Gap Mortgage (or a declaration that his rights are superior to those of
Wells Fargo); the cancellation of the 2003 CEMA and 2003 Gap Mortgage (or a declaration that
his rights are superior to those of Wells Fargo); and a declaratory judgment that the 2001 note is
satisfied and discharged. Plaintiff seeks no specific relief as to the 2005 CEMA or the 2005
The 2013 State Court Proceeding
On January 22, 2013, Wells Fargo initiated a foreclosure action in Kings County against
McKenzie to foreclose on the 2005 Consolidated Mortgage. Plotch was not named as a party.
McKenzie ultimately defaulted in that action. On October 11, 2016, Plotch filed a motion,
purportedly as McKenzie’s successor in interest, pursuant to New York Civil Practice Law and
Rule (“CPLR”) § 1018, seeking to dismiss the state court action. Wells Fargo opposed this motion.
The state court denied Plotch’s motion on February 9, 2017. The order stated, “following oral
argument . . . non-party’s motion to substitute into the action is denied pursuant to [New York
Civil Practice Law and Rule] 1018. Furthermore, to the extent that the motion is made pursuant
At oral argument, plaintiff acknowledged that he took the property subject to Wells
Fargo’s superior liens. Though plaintiff challenges the validity of those liens here, to the extent
they are valid, plaintiff acknowledges that those liens are superior.
to CPLR 1012, the motion is denied as untimely.” 3 In that same order, the state court granted
Wells Fargo’s motion for an order of reference, and the foreclosure case was sent to a referee. On
May 9, 2017, Plotch moved for reconsideration. This motion is still pending. See Wells Fargo v.
Philip McKenzie, No. 0001243/2013 (N.Y. Sup. Ct., Kings County).
Defendant argues that I should abstain from exercising jurisdiction pursuant to Younger v.
Harris, 401 U.S. 37 (1971). In Sprint Communications, Inc. v. Jacobs, 134 S. Ct. 584, 591 (2013),
the Supreme Court clarified that Younger applies only in three “exceptional” circumstances: (1)
state criminal prosecutions; (2) civil enforcement proceedings; and (3) civil proceedings that
implicate a state’s interest in enforcing the orders and judgments of its courts. Id. at 588.
Courts have routinely concluded that a pending state court foreclosure proceeding falls
within the third category articulated in Sprint—a civil proceeding that implicates a state’s interest
in enforcing the orders of its courts. See Calizaire v. Mortg. Elec. Reg. Systs., Inc., 2017 WL
895741, at *3 (E.D.N.Y. Mar. 6, 2017) (collecting cases). However, Younger generally does not
apply against those not party to the pending state proceedings. See Doran v. Salem Inn, Inc., 422
U.S. 922, 929 (1975); Hindu Temple Society of North Am. v. Supreme Court of State of New York,
335 F. Supp. 2d 369, 375 (E.D.N.Y. 2004). Only “where the plaintiffs’ interests are so inextricably
intertwined that direct interference with the state court proceeding is inevitable, Younger may
extend to bar the claims of plaintiffs who are not party to the pending state proceeding.” Spargo
CPLR § 1012 governs intervention in an action while CPLR § 1018 governs substitution
into an action.
v. New York State Commission on Judicial Conduct, 351 F.3d 65, 82 (2d Cir. 2003) (internal
Defendant fails to offer any argument as to why the interests of plaintiff and McKenzie are
so intertwined that an exception to the general rule—that Younger is inapplicable to non-parties—
is proper in this case. See Roberts v. New York, 911 F. Supp. 2d 149, 169 (N.D.N.Y. 2012)
(declining to apply Younger because “defendants have failed to demonstrate that plaintiffs’
interests are so closely related that abstention is warranted.”). Obviously, they are not. McKenzie
has defaulted, whereas Plotch’s interest is to stop Wells Fargo’s attempt to foreclose on the
property. As the Ninth Circuit has articulated:
The district court properly declined to abstain under Younger. [Defendant] initially
named Plaintiffs as parties in the [state court] action but unilaterally dismissed them.
[Defendant] did so precisely because of Plaintiffs’ effort to fight—that is, to present
a defense in state court. Younger abstention cannot apply to one who is a stranger
to the state proceeding. [Defendant] made Plaintiffs strangers to the state case by
denying them an opportunity to be heard in state court on the question . . . Moreover,
as parties dismissed from the state case, Plaintiffs’ interests are not intertwined with
those against whom the Order was issued . . . The question Plaintiffs raise in this
case . . . arose precisely because Plaintiffs were dismissed from the state court
litigation and so could not defend against the imposition of an injunction on them in
that litigation. Those covered by name by the [state court] Order did not attempt to
present a defense and were not dismissed from the litigation. The circumstances and
interests of those covered by name in the [state court] Order and the Plaintiffs are
therefore entirely divergent as to the procedural issues raised here.
Vasquez v. Rackauckas, 734 F.3d 1025, 1035 (9th Cir. 2013) (internal quotations omitted). This
case is similar to Vasquez in two respects. First, Plotch is a stranger to the state court proceeding
because Wells Fargo successfully opposed his substitution into the action. None of the cases relied
upon by defendant involve a federal court declining to exercise jurisdiction based upon a state
court foreclosure proceeding where the plaintiff in the federal proceeding is not a party to the state
court action. Second, McKenzie did not present a defense in state court, as he defaulted. In effect,
defendant successfully argued against plaintiff’s participation in the state court action and now
seeks to block plaintiff’s avenue to federal court by saying that the state proceeding afforded
plaintiff an adequate opportunity for judicial review. It did not.
I also reject defendant’s contention that the state court has already provided plaintiff with
an opportunity to be heard and has adjudicated the defenses plaintiff seeks to raise here. The state
court denied both substitution under CPLR § 1018 and intervention under CPLR § 1012. Nothing
in the state court’s decision suggests that it resolved plaintiff’s claims on the merits. Indeed,
plaintiff’s state court motion does not even raise the claims he raises in the current action.
Accordingly, I decline to invoke Younger abstention.
“Relitigation of an issue of fact or law is precluded on the basis of collateral estoppel if (1)
the identical issue was raised in a previous proceeding; (2) the issue was actually litigated and
decided in the previous proceeding; (3) the party had a full and fair opportunity to litigate the issue;
and (4) the resolution of the issue was necessary to support a valid and final judgment on the
merits.” Bulovic v. Stop & Shop Supermarket Co., LLC, 698 Fed. Appx. 21, 22 (2d Cir. 2017)
(internal quotation omitted). Defendant argues that “the state court has effectively disposed of any
claims and defenses Plotch might have with respect to the Property when it denied Plotch’s motion
to intervene and dismiss the Foreclosure Action.” Def. Mem. at 11. Plotch was never permitted
to intervene or substitute into the state court action, so, not having been part of that action, he did
not have an opportunity to fully and fairly litigate substantive issues. Moreover, the state court
opinion does not discuss any of these substantive issues, which indicates that the resolution of the
issues Plotch raises here were not necessary to support a decision in the state court. Accordingly,
this action is not barred by collateral estoppel. 4
Failure to State a Claim
Defendant also moves to dismiss for failure to state a claim. In deciding a motion to dismiss
pursuant to Federal Rule of Civil Procedure 12(b)(6), the court must accept as true all well-pleaded
factual allegations and must draw all inferences in plaintiff’s favor. Swiatkowski v. Citibank, 446
Fed. Appx. 360, 360-61 (2d Cir. 2011). To survive a motion to dismiss, a complaint must contain
sufficient factual matter to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Facial
plausibility exists when a plaintiff “pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id.
The first issue to resolve as to the merits of plaintiff’s claim is whether the 2005
Consolidated Mortgage is the only relevant mortgage. In other words, assuming arguendo that the
mortgages issued prior to the 2005 Consolidated Mortgage were defective in the way plaintiff
alleges, do those defects matter in light of the 2005 Consolidated Mortgage? Plaintiff argues that,
if any of the underlying mortgages were defective, then the value of those defective mortgages
should be subtracted from the lien Wells Fargo holds on the property. Wells Fargo argues that the
2005 Consolidated Mortgage supersedes the prior mortgages and is the only mortgage relevant to
Wells Fargo is correct that the 2005 Consolidated Mortgage supersedes the prior mortgages
and is the mortgage critical to the rights of the parties. The 2005 CEMA states that “[t]he
Defendant also argues that plaintiff has a remedy by way of his pending appeal and/or
motion for reconsideration. If one of those remedies is successful, and plaintiff is allowed to be
heard in state court, then an abstention motion may become viable.
Consolidated Note will supersede all terms, covenants, and provisions of the Notes.” See Compl.
Ex. C at 5. It also states that “all of the Lender’s rights in the Property are combined so that under
the law Lender has one mortgage and I [borrower] have one loan obligation which I will pay as
provided in this Agreement.” Id. 5
In support of its argument, Wells Fargo points to another case in which plaintiff was a party
and attempted to advance a similar argument, which the New York Court of Appeals rejected. See
Plotch v. Citibank, N.A., 27 N.Y.3d 477, 483-84 (2016). In that case, there was a consolidated
mortgage comprised of two underlying mortgages. The first mortgage had been issued in the
amount of $54,000, and the second mortgage in the amount of $38,000. These mortgages were
consolidated into one mortgage of $92,000. Plotch, approximately ten years after the mortgages
had been consolidated, purchased the property subject to “the first Mortgage of record against the
premises.” Id. at 481. Plotch argued that the original $54,000 mortgage was the first mortgage of
record, while Citibank argued that the $92,000 consolidated mortgage was the first mortgage of
record. In that case, Plotch maintained “that the phrase first mortgage of record means solely the
mortgage recorded earliest in time, and that a consolidated mortgage must therefore be broken
down into its component mortgages in order to identify the ‘first mortgage of record.’” Id. at 482.
The Court of Appeals concluded that the consolidated mortgage was the operative mortgage that
governed the rights of the parties and did not break the consolidated mortgage down into its
The rationale followed by the New York Court of Appeals applies here—a consolidated
mortgage can supersede prior mortgages and become the operative agreement between the parties,
I may consider the mortgage documents because plaintiff attached them to the complaint
and incorporated them by reference. See Chambers v. Time Warner, Inc. 282 F.3d 147, 152-53
(2d Cir. 2002).
if that is what their contract so provides. As the Court of Appeals noted, holding otherwise would
lead to only additional steps in the consolidation process. Id. at 483. (“Banks . . . would simply
take additional steps to satisfy the original mortgage, take out a new mortgage, and pay the
additional fees required to achieve precisely the same result.”) Here, as in Plotch, the 2005 CEMA
language establishes unequivocally that the three mortgages were consolidated and that the parties
intended Wells Fargo to have “one mortgage and [McKenzie to] have one loan obligation.” See
Compl. Ex. C at 5. The Court of Appeals recognized that a CEMA cannot impair or derogate the
priorities of any intervening lien between the mortgages being consolidated, but that is not an issue
here, as McKenzie and Wells Fargo were the only relevant parties at the time of the 2005 CEMA.
In taking possession of the property in 2012, Plotch stepped into the shoes of McKenzie and his
obligations to Wells Fargo are coextensive with McKenzie’s obligations, which were consolidated
into the 2005 CEMA and 2005 Consolidated Mortgage.
Since I have concluded that the 2005 Consolidated Mortgage is the only mortgage relevant
to this litigation, the issue arises as to whether plaintiff challenges its validity. He does not.
Although he makes various factual allegations regarding the 2005 Mortgage, his delineated legal
claims relate only to the 2005 Gap Mortgage, and mortgages from 2001 and 2003. Because the
only relevant mortgage is the 2005 Consolidated Mortgage, plaintiff has failed to state a claim and
defendant’s motion to dismiss is granted on that basis. 6 If plaintiff seeks leave to amend his
complaint, he must do so by January 26, 2018.
At oral argument, defendant contended that the version of the 2005 Consolidated Mortgage
that was attached to the 2005 CEMA as an exhibit is irrelevant, and that the only relevant document
is the final version of the 2005 Consolidated Mortgage. Plaintiff argued that the only version of
the 2005 Consolidated Mortgage that was properly recorded on the public registry was as an
exhibit to the 2005 CEMA. Though I conclude that the 2005 Consolidated Mortgage is the only
relevant document, to the extent the only version that was ever recorded was as an exhibit to the
Defendant’s motion to dismiss is granted. Plaintiff is provided until January 26, 2018 to
seek leave to amend his complaint.
United States District Judge
Dated: January 8, 2018
Brooklyn, New York
2005 CEMA, then the 2005 CEMA may become relevant. If plaintiff seeks leave to amend his
complaint, then the parties can address this issue at that time.
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