Hennessy et al v. Fischer et al

Filing 104

MEMORANDUM AND ORDER - For the reasons set forth herein, the Second Cause of Action is sua sponte dismissed. The remainder of this case is sua sponte remanded to the New York Supreme Court, County of Nassau. The Clerk of the Court is directed to terminate all pending motions and mark this matter as closed. So Ordered by Judge Joanna Seybert on 8/17/10. C/ECF; C/M (Valle, Christine)

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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK ----------------------------------X THOMAS HENNESEY, ET AL., Plaintiff, -againstPETER J. DAWSON, ET AL., Defendants. ----------------------------------X APPEARANCES: For Plaintiffs: Jacob H. Zamansky, Esq. Kevin Dugald Galbraith, Esq. Edward H. Glenn, Jr., Esq. Zamansky & Associates LLC 50 Broadway, 32nd Floor New York, NY 10004 For Defendants: Peter J. Dawson, BMG Advisory Services, Ltd., Brash Management Group, Ltd., and Ethan Thomas Co. Inc.: Gray Winslow: Peter J. Tomao, Esq. Law Office of Peter J. Tomao 226 Seventh Street, Suite 302 Garden City NY 11530 MEMORANDUM AND ORDER 09-CV-2170 (JS)(ARL)

Gray Winslow, pro se 315 West 74th Street, Apt. A New York, NY 10023 Ira F. Seplow, Esq. 181 Beach 116 Street Rockaway Park, NY 11694 Barry R. Temkin, Esq. Robert S. Goodman, Esq. Mound Cotton Wollan & Greengrass 1 Battery Park Plaza New York, NY 10004

21st Century Fin. Services, Inc., and Charles Mazzioti: Invest Financial Corp.:

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Granite Sec., LLC:

Clifford S. Robert, Esq. Robert & Robert, LLP 150 Broadhollow Rd, #314 Melville, NY 11747 Candace Reid Gladsto, Esq. Patrick McCormick, Esq. Certilman, Balin, Adler & Hyman, LLP 90 Merrick Avenue East Meadow, NY 11554 Arthur C. Schupbach, Esq. Schupbach, Williams & Pavone, LLP 1010 Franklin Ave, Suite 300 Garden City, NY 11530 Steven S. Rand, Esq. Anna Sydney Park, Esq. Zeichner Ellman & Krause, LLP 575 Lexington Avenue New York, NY 10022 Douglas J. Bohn, Esq. Cullen and Dykman, LLP 100 Quentin Roosevelt Blvd. Garden City, NY 11530 Scott E. Kossove, Esq. L'Abbate, Balkan, Colavita & Contin 1001 Franklin Avenue Garden City, NY 11530

PHH Mort. Corp.:

First Nat. Bank of Long Island:

Countrywide Home Loans, Inc., and Homecomings Financial, LLC: Washington Mutual, Inc.:

Custom Cap. Corp.:

American Skandia Patrick Collins, Esq. Life Assurance Co.: Farrell Fritz, P.C. 1320 Reckson Plaza Uniondale, NY 11556 First Allmerica Financial Life Insurance Company: Other Defendants: Matthew B. West, Esq. Wollmuth Maher & Deutsch LLP 500 5th Avenue, 12th Floor New York, NY 10110 No appearances.

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For Interested Party Greenpoint Mortgage Funding Corp.:

Scott B. Fischer, Esq. Jaspan Schlesinger LLP 300 Garden City Plaza Garden City, NY 11530

SEYBERT, District Judge: For the following reasons, the Court hereby sua sponte dismisses the Third Amended Complaint's Second Cause of Action and remands the balance of this litigation to the New York

Supreme Court, County of Nassau. BACKGROUND This is a complex mortgage fraud case, which

Plaintiffs originally brought in New York Supreme Court, County of Nassau, on November 21, 2006. On May 21, 2009, the Federal

Deposit Insurance Corporation ("FDIC") removed this action to the E.D.N.Y., under the special removal authority that 12 U.S.C. § 1819 grants it. On August 2, 2010, the Court so-ordered a

stipulation voluntarily dismissing, with prejudice, all claims against the FDIC. The Court then asked for the parties'

respective positions "as to whether the Court can, and should, retain jurisdiction over this matter," in light of the FDIC's exit. Court In response to the Court's inquiry, Plaintiffs asked the to retain asked jurisdiction. the Court to Defendant remand this Invest matter Financial to state

Corporation court.

Defendant PHH Mortgage Corporation indicated a slight

preference for a federal forum, but asked the Court to remand

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the case "in the posture in which it came to the Court," "if the Court determines that remand is in the best interest of the parties." And GreenPoint Mortgage Funding, Inc., a defendant in

a related state court proceeding, wrote in support of a state forum for the case against it. respond to the Court's inquiry. DISCUSSION I. Federal Question Jurisdiction As an initial matter, Plaintiffs contend that the The remaining Defendants did not

Court need not reach the issues posed by the FDIC's dismissal, because the Third Amended Complaint ("TAC") asserts federal

question jurisdiction. TAC's Second Cause of

Specifically, Plaintiffs note that the Action asserts a claim under the

Investment Advisors Act of 1940, 15 U.S.C. § 80b-1, et seq. (Docket No. 100 at 2). But this argument fails, because the

Court must dismiss the Second Cause of Action sua sponte. The Investment Advisors Act does not contain a private right of action for damages. See Transamerica Mortg. Advisors,

Inc. (TAMA) v. Lewis, 444 U.S. 11, 19-21, 100 S. Ct. 242, 62 L. Ed. 2d 146 (1979). Rather, the Act's private right of action is Id. at 18-

limited to claims seeking rescission of a contract. 19.

Here, the Second Cause of Action does not seek rescission. Instead, it impermissibly seeks compensatory based on 4 certain defendants alleged

(TAC ¶ 237-241). and punitive

damages

misappropriation or conversion of customer funds, and/or these defendants failing to adhere to their professional obligations. (TAC ¶ 239-241). state an Thus, the Second Cause of Action fails to Investment Advisors Act claim. See

actionable

Transamerica Mortg. Advisors, Inc., 444 U.S. at 19-21; In re Bayou Hedge Fund Litigation, 534 F. Supp. 2d 405, 420 (S.D.N.Y. 2007) (no private right of action under statute for fiduciary duty breaches). Plaintiffs jurisdiction exists further because argue the that federal of question also

Second

Cause

Action

asserts "securities fraud." enough, the Second fashion, Cause

(Docket No. 100 at 2). of Action certain does allege,

And, sure in rather

conclusory

that

defendants

committed

"securities fraud."

(TAC ¶ 239).

But the Second Cause of

Action neither identifies a particular securities fraud statute nor clarifies whether it seeks relief under federal or state law. 8's Such vague pleading does not comply with Fed. R. Civ. P. requirement that a complaint contain "short and plain

statement of the grounds for the court's jurisdiction," much less comply with the heightened pleading standard that Fed R. Civ. P. 9(b) imposes in securities fraud cases. that the Court must sua sponte dismiss the It follows then Second Cause of

Action.

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I.

12 U.S.C. § 1819 Jurisdiction With only state law claims remaining and the FDIC no

longer a party, the question thus turns to whether the Court can, and should, continue to exercise jurisdiction over this matter. In Mizuna, Ltd. v. Crossland Fed. Sav. Bank, 90 F.3d

650, 657 (2d Cir. 1996), the Second Circuit addressed this very situation. In Mizuna, like here, the FDIC removed a state law

case under § 1819, and the plaintiffs then dismissed the claims against the FDIC. The defendants then sought to remand the The Second Circuit found that,

remaining claims to state court.

with the FDIC no longer a party, the district court "had the power under 28 over U.S.C. the § other 1367 to exercise but supplemental had the

jurisdiction

claims,"

"also Id.

discretion to remand the case to state court."

The Second

Circuit then found that the district court properly exercised its discretion by retaining jurisdiction. Here, applying Mizuna, the Id. exercise of the

proper

Court's discretion demands remand.

The Court has not yet had a

full opportunity to delve into this litigation's facts, or begin work on the pending dispositive motions. The Court did,

however, have a recent opportunity to confer with Justice F. Dana Winslow on this matter. Justice Winslow handled this

action when it was pending in the New York Supreme Court, County of Nassau, and would presumably handle in again if remanded. 6 In

the

meantime,

he

has

continued

to

oversee

a

related

case,

Frawley v. Dawson, Index No. 2007-006697 (N.Y. Sup. Ct., Nass. Co.). During the Court's conversation with him, Justice Winslow Indeed, the

displayed a remarkable command of the relevant facts. Justice Court's. Winslow's knowledge base significantly

exceeded

In addition, Justice Winslow indicated that his docket

would likely allow him to decide the pending dispositive motions long before the Court can get to them. handling agreed the Frawley remand matter, the And, because he is still and Justice both Winslow judicial

Court

that

would

significantly

promote

efficiency and overall fairness to the parties.

Conversely,

keeping this action here would only lead to unnecessary delays, and rulings by a jurist significantly less familiar with the underlying facts. So, whereas the Court in Mizuna properly

exercised its discretion in retaining jurisdiction, this action cries out for remand. 1 CONCLUSION The Second Cause of Action is sua sponte dismissed. The remainder of this case is sua sponte remanded to the New
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Defendant PHH Mortgage Corporation argues that "retention of jurisdiction may well be in the interests of the parties" given "the significant time and expense" they incurred converting state law motions to dismiss into federal summary judgment motions. (Docket No. 102 at 2). The Court disagrees. Though regrettable, the expenses the parties incurred to comply with federal practice are a classic example of sunk costs. Those funds have been spent regardless of whether the Court or Justice Winslow decides the pending motions. 7

York Supreme Court, County of Nassau.

The Clerk of the Court is

directed to terminate all pending motions and mark this matter as closed.

SO ORDERED. /s/ ___________ Joanna Seybert, U.S.D.J. Dated: Central Islip, New York August 17, 2010

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