Knox et al v. Countrywide Bank et al

Filing 32

ORDER granting 4 Motion to Dismiss for Failure to State a Claim. IT IS HEREBY ORDERED that defendants' motion to dismiss is granted in part and denied in part. The complaint's core assertions of fraud are dismissed because the alleged splitting of the 2004 mortgage and note does not invalidate the 2004 note or the CEMA, and because plaintiffs could not reasonably have relied on income data that they knew to be false (as conceded in the complaint). The latter fraud claim is also barred by the doctrine of in pari delicto. The remaining statutory claims, except for the claim under RPAPL 15, are time-barred and in any event fail to allege sufficient facts to support a plausible claim. The purported common-law claims are not c ognizable as affirmative claims for relief. Leave to amend the fraud, statutory, and purported common-law claims would be futile and is denied. However, plaintiffs' quiet title cause of action under RPAPL Article 15 does state a claim, and the motion to dismiss is denied with respect to that claim only. Plaintiffs' motion to remand is denied. SO ORDERED. Ordered by Judge Joseph F. Bianco on 3/12/2014. (Lamb, Conor)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
No 13-cv-3789 (JFB)(WDW)
_____________________

DIANA A. KNOX AND PHILIP L. KNOX, JR.,
Plaintiffs,
VERSUS

COUNTRYWIDE BANK, BANK OF AMERICA, OCWENS LOAN SERVICING, LLC,
FEDERAL NATIONAL MORTGAGE ASSOCIATION, MERSCORP HOLDINGS, INC.,
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.,
Defendants.
___________________
MEMORANDUM AND ORDER
March 12, 2014
___________________

JOSEPH F. BIANCO, District Judge:
Defendants move to dismiss this action
alleging fraud and other claims related to
plaintiffs’ mortgage agreements with
defendant Countrywide.1
Plaintiffs are
individual homeowners who mortgaged their
home to Countrywide in 2004, and then
sought a second mortgage in 2008. The two
mortgages
were
combined
in
a
“Consolidation, Extension, and Modification
Agreement” (“CEMA”) that plaintiffs
contend was fraudulent, both because
Countrywide allegedly inserted false
financial information into the application,
and
because
Countrywide
allegedly
concealed that the underlying note was
invalid.
1

Defendant Countrywide was purchased by Bank of
America, but the Court will refer to it as
“Countrywide” throughout this Memorandum and
Order.

For the reasons discussed herein, the
Court grants defendants’ motion in part and
denies it in part. The complaint’s core
assertions of fraud are dismissed because
plaintiffs acknowledge that they knew their
loan documents contained false financial
information, but signed them anyway. To
the extent that the fraud claims are based on
the alleged invalidity of the 2004 mortgage
note, plaintiffs’ legal theory concerning the
splitting of the note from the mortgage does
not comply with New York law. The
remaining claims are time-barred, fail to
allege sufficient facts, or are not cognizable
as affirmative claims for relief, except
plaintiffs’ quiet title claim, which may
proceed. Leave to amend the other claims
would be futile, and is denied.

I. BACKGROUND

equity loan, but were unsuccessful until they
approached Countrywide. (Id. ¶¶ 4-7.)
Based on plaintiffs’ respective credit scores,
Countrywide agreed to make a loan to Diana
Knox only. (Id. ¶ 7.) Plaintiffs informed
Countrywide of their desire to close on the
loan before Diana was scheduled to leave
the country on February 15, 2008. (Id. ¶ 8.)

A. Procedural History
Plaintiffs filed this suit on June 7, 2013,
in the Supreme Court of the State of New
York, Nassau County. Defendants timely
removed the case to this Court on July 8,
2013, on the basis of diversity jurisdiction.
On July 15, 2013, defendants moved to
dismiss. On September 3, 2013, plaintiffs
filed a brief in opposition to the motion to
dismiss, and also filed a motion to remand.
Defendants opposed the remand motion and
replied in support of their motion to dismiss
on October 3, 2013.2

On February 12, 2008, a Countrywide
official sent Philip Knox paperwork for
Diana to sign, and said that if she signed and
returned it right away, the closing could
occur that same evening. (Id. ¶ 9.) The
paperwork included a loan application,
which already contained data stating Diana’s
income as $9,000.00 per month, and stating
that she had $18,515.01 in a 401k plan. (Id.
¶¶ 10-11.) The complaint states that these
figures were inaccurate, and that on
February 12, 2008, Diana’s income was
actually $2,130.00 per month, with no
money invested in a 401k. (Id. ¶ 12.) Philip
informed Countrywide of the inaccurate
data, but was allegedly told that the
application needed to remain as received.
(Id. ¶ 13.) Countrywide also told Philip that,
in order to close on the loan that evening, he
should sign the application in Diana’s name,
since Diana would not return home from
work until the afternoon. (Id.)

B. Factual Background
The following facts are taken from the
complaint. The Court assumes these facts to
be true for the purpose of deciding this
motion, and construes them in the light most
favorable to plaintiffs, the non-moving
party.
Plaintiffs are the deeded owners of a
home in Oyster Bay, New York. (Compl. ¶
1.) On April 23, 2004, plaintiffs mortgaged
their home to Countrywide, a transaction
with an original principal balance of
$329,000.00. (Id. ¶ 5.) In January 2008,
plaintiffs experienced severe credit card debt
and were concerned that they might face
bankruptcy and foreclosure. (Id.) Plaintiffs
contacted several lenders to obtain a home

Philip then signed the loan application
on his wife’s behalf, and plaintiffs closed on
the loan that evening. (Id. ¶¶ 14-15.) At the
closing,
Diana
received
additional
paperwork containing false income data, but
signed it nonetheless. (Id. ¶ 18(c).) The
result of the closing was that the 2004
mortgage and note were consolidated with
the second, 2008 mortgage and note, in the
form of a new loan with a value of
$585,000.00,
as
reflected
in
the
“Consolidation, Extension, and Modification
Agreement” (“CEMA”). (Id. ¶ 15; Def.
Mot. at 2.)

2

Plaintiffs alleged in their complaint that they are
New York residents, and that each defendant’s
principal place of business is outside of New York.
(Compl. ¶¶ 1-2.) They also sought damages of
$309,941.22. (Id. at p.27.) The remand motion does
not cast doubt on either of these allegations, but
instead simply lists individual places of business in
New York which are controlled by defendants, and
cites a legal test related to federal-question removal.
Thus, the Court has subject matter jurisdiction based
on diversity of citizenship, and the motion to remand
is denied.

2

C. Legal Background

of
mortgages.
Members
contractually agree to appoint
MERS to act as their common
agent on all mortgages they register
in the MERS system.

These plaintiffs are not the first to allege
that the splitting of a mortgage from its note
invalidates those instruments.
Similar
claims have been made in many cases
involving defendant Mortgage Electronic
Registration Systems (“MERS”). In this
case, plaintiffs allege that the 2004 note was
split from the mortgage when the latter was
assigned to MERS, thereby invalidating both
instruments and making their consolidation
into the CEMA an act of fraud by
Countrywide.

The initial MERS mortgage is
recorded in the County Clerk’s
office with “Mortgage Electronic
Registration Systems, Inc.” named
as the lender’s nominee or
mortgagee of record on the
instrument. During the lifetime of
the mortgage, the beneficial
ownership interest or servicing
rights may be transferred among
MERS
members
(MERS
assignments),
but
these
assignments are not publicly
recorded; instead they are tracked
electronically in MERS’s private
system. In the MERS system, the
mortgagor is notified of transfers of
servicing rights pursuant to the
Truth in Lending Act, but not
necessarily of assignments of the
beneficial interest in the mortgage.

Although the complaint is not
particularly clear concerning how the 2004
mortgage and note were split, the note
shows that while Countrywide held the note,
MERS was the mortgagee of record. (Ex. B
to Compl.) The complaint alleges that, in
consolidating the 2004 mortgage and note
into the CEMA, Countrywide was
attempting to “bury” instruments it knew to
be defective.3 (Compl. ¶ 31.)
In recent years, MERS has faced similar
arguments in litigation around the country.
The New York Court of Appeals has
provided useful background information
concerning the history and operation of
MERS:

Matter of MERSCORP, Inc. v. Romaine, 8
N.Y.3d 90, 96 (2006) (footnotes omitted).
Often, as in this case, MERS holds the
mortgage interest as the mortgagee of record
while the original lender, or some other
entity, holds the underlying note.
Homeowners have argued that this practice
of “splitting” the mortgage from the note
renders one or both invalid. See In re
Mortgage Electronic Registration Sys.
(MERS) Litig., MDL Docket No. 09-2119JAT, 2011 WL 4550189, at *3 (J.P.M.L.
Oct. 3, 2011); Brett J. Natarelli & James M.
Golden, The End of the Beginning in the
Battle Over MERS, 65 CONSUMER FIN. L.Q.
REP. 400, 401-02 (2011). In general, courts
have upheld the MERS system against broad

In 1993, the MERS system was
created by several large participants
in the real estate mortgage industry
to track ownership interests in
residential mortgages. Mortgage
lenders and other entities, known as
MERS members, subscribe to the
MERS system and pay annual fees
for the electronic processing and
tracking of ownership and transfers
3

To the extent that plaintiffs separately allege
Countrywide’s loss of ownership of the 2004 note,
that allegation is discussed as part of plaintiffs’ first
fraud theory, infra section III.B.

3

misconduct alleged. The plausibility
standard is not akin to a ‘probability
requirement,’ but it asks for more than a
sheer possibility that a defendant has acted
unlawfully.” Id. at 678 (quoting and citing
Twombly, 550 U.S. at 556-57 (internal
citation omitted)).

challenges, id., although the Second
Department in New York has held that the
splitting of the note from the mortgage
affects which entities have standing to
foreclose. Bank of New York v. Silverberg,
926 N.Y.S.2d 532 (N.Y. App. Div. 2011).
That case is central to plaintiffs’ theories of
liability, and is discussed in more detail
below.

However, where a case concerns
allegations of fraud or mistake under Rule
9(b) of the Federal Rules of Civil Procedure,
claims must be pled with particularity. See
Fed. R. Civ. P. 9(b) (“In alleging fraud or
mistake, a party must state with particularity
the circumstances constituting fraud or
mistake.”). Generally, to comply with Rule
9(b)’s specificity requirements, “the
complaint must: (1) specify the statements
that the plaintiff contends were fraudulent,
(2) identify the speaker, (3) state where and
when the statements were made, and (4)
explain why the statements were
fraudulent.” Lerner v. Fleet Bank, N.A., 459
F.3d 273, 290 (2d Cir. 2006) (quoting Mills
v. Polar Molecular Corp., 12 F.3d 1170,
1175 (2d Cir. 1993)) (internal quotation
mark omitted). Conclusory allegations of
fraud will not survive Rule 9(b)’s
heightened pleading standard, and therefore,
will be subject to dismissal at the motion to
dismiss stage. See Nasso v. Bio Reference
Labs, Inc., 892 F. Supp. 2d 439, 446
(E.D.N.Y. 2012) (citing Shemtob v.
Shearson, Hammill & Co., 448 F.2d 442,
444 (2d Cir. 1971)).

II. STANDARD OF REVIEW
In reviewing a motion to dismiss
pursuant to Rule 12(b)(6), the Court must
accept the factual allegations set forth in the
complaint as true and draw all reasonable
inferences in favor of the plaintiff.
Operating Local 649 Annuity Trust Fund v.
Smith Barney Fund Mgmt. LLC, 595 F.3d
86, 91 (2d Cir. 2010). “In order to survive a
motion to dismiss under Rule 12(b)(6), a
complaint must allege a plausible set of facts
sufficient ‘to raise a right to relief above the
speculative level.’” Id. (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555
(2007)).
The Supreme Court clarified the
appropriate pleading standard in Ashcroft v.
Iqbal, setting forth two important
considerations for courts deciding a motion
to dismiss. 556 U.S. 662 (2009). The Court
instructed district courts to first “identify[ ]
pleadings that, because they are no more
than conclusions, are not entitled to the
assumption of truth.” Id. at 679 (explaining
that though “legal conclusions can provide
the framework of a complaint, they must be
supported by factual allegations”). Second,
if a complaint contains “well-pleaded factual
allegations, a court should assume their
veracity and then determine whether they
plausibly give rise to an entitlement to
relief.” Id. A claim has “facial plausibility
when the plaintiff pleads factual content that
allows the court to draw the reasonable
inference that the defendant is liable for the

Where a motion to dismiss presents
itself before the court, a court may examine
the following: “(1) facts alleged in the
complaint and documents attached to it or
incorporated in it by reference, (2)
documents ‘integral’ to the complaint and
relied upon in it, even if not attached or
incorporated by reference, (3) documents or
information contained in defendant’s motion
papers if plaintiff has knowledge or
4

A. The Mortgage-Splitting Argument

possession of the material and relied on it in
framing the complaint, (4) public disclosure
documents required by law to be, and that
have been, filed with the Securities and
Exchange Commission, and (5) facts of
which judicial notice may properly be taken
under Rule 201 of the Federal Rules of
Evidence.” Nasso, 892 F. Supp. 2d at 446
(internal quotation marks and citation
omitted). As is discussed below, plaintiffs
attached numerous documents to the
complaint which the Court can consider, and
has considered, in connection with the
motion to dismiss.

As discussed above, homeowners around
the country have argued that the MERS
practice of separating mortgages from their
underlying
notes
invalidates
those
instruments. Many of these challenges have
failed, but in Bank of New York v.
Silverberg, the Second Department held that
there was no standing to foreclose where the
bank held a mortgage interest assigned to it
by MERS, but not the underlying note. 926
N.Y.S.2d 532 (N.Y. App. Div. 2011). Like
this
case,
Silverberg
involved
a
Consolidation
Agreement
in
which
Countrywide was the original lender and
MERS was named as Countrywide’s
nominee and the mortgagee of record. Id. at
534. MERS assigned the mortgage interest
to the Bank of New York, who attempted to
foreclose. Id. The case was dismissed
because, under New York law, mortgages
pass as incidents to their underlying notes,
and “a transfer of the mortgage without the
debt is a nullity, and no interest is acquired
by it.” Id. at 537 (quoting Merritt v.
Bartholick, 36 N.Y. 44, 45 (1867)).

Plaintiffs in this case are proceeding pro
se, and courts are obliged to construe the
pleadings of a pro se plaintiff liberally.
Sealed Plaintiff v. Sealed Defendant, 537
F.3d 185, 191 (2d Cir. 2008); McEachin v.
McGuinnis, 357 F.3d 197, 200 (2d Cir.
2004)). Pro se complaints should be read to
raise the strongest arguments they suggest,
Triestman v. Fed. Bureau of Prisons, 470
F.3d 471, 474 (2d Cir. 2006) (per curiam),
but a complaint must nonetheless “‘state a
claim to relief that is plausible on its face.’”
Mancuso v. Hynes, 379 F. App’x 60, 61 (2d
Cir. 2010) (citing Iqbal, 129 S.Ct. at 1949);
see also Harris v. Mills, 572 F.3d 66, 72 (2d
Cir. 2009) (applying Twombly and Iqbal to
pro se complaint).

Plaintiffs rely on the preceding quote in
several places in their submissions to this
Court, but in doing so, they have missed part
of the broader rule quoted in Merritt and still
followed in New York today.
Stated
completely, the “principal-incident rule” is
as follows:

III. DISCUSSION
The following discussion first considers
plaintiffs’ argument that the splitting of the
2004 mortgage and note invalidated those
instruments, and then turns to plaintiffs’
claims of fraud, deceptive practices, and
other statutory and common law theories of
liability.

[T]he incident shall pass by the
grant of the principal, but not the
principal by the grant of the
incident.
Id. In other words, while a mortgage (the
incident) is unenforceable apart from its note
(the principal), the note is nonetheless
enforceable apart from its mortgage.

5

B. Plaintiffs’ First Fraud Theory

Silverberg did not change the principalincident rule. As one court has since
explained, even after Silverberg, “the focus,
under the ‘principal-incident’ rule, should be
on the mortgage note and not, as in various
cases, upon the mortgage as a security
instrument.” Deutsche Bank Nat’l Trust Co.
v. Pietranico, 928 N.Y.S.2d 818, 833 (N.Y.
Sup. Ct. 2011). That court explained that
under New York law, including Silverberg:

The foregoing discussion demonstrates
the flaw in plaintiffs’ primary theory of
fraud, which rests on their legal conclusion
that Countrywide was not the “holder in due
course” of the 2004 note because it was split
from the mortgage. Of course, a legal
conclusion of this nature is not entitled to
the presumption of truth. Iqbal, 556 U.S. at
679-80. There appear to be two factual
elements to plaintiffs’ theory that the Court
accepts as true for the purposes of this
motion. First, plaintiffs allege that the
mortgage was split from the note, with
Countrywide holding the note and MERS, or
its assignee, holding the mortgage. As a
matter of law, however, that fact does not
extinguish plaintiffs’ debt—at most, after
Silverberg, the split could affect a mortgageholder’s standing in a foreclosure case,
which this is not. Thus “[i]t is the interest in
the note that is controlling and it is irrelevant
if a nominee for the beneficial owner of the
note is listed as the mortgagee of record.”
Pietranico, 928 N.Y.S.2d at 833.

Any disparity between the holder
of the note and the mortgagee of
record does not stand as a bar to a
foreclosure action because the
mortgage is not the dispositive
document of title as to the
mortgage loan. The holder of the
note is deemed the owner of the
underlying mortgage loan with
standing to foreclose.
Id. at 830; Silverberg, 926 N.Y.S.2d at 539
(distinguishing a case where MERS had
standing to foreclose because the lender had
transferred the promissory note to MERS);
see also In re Escobar, 457 B.R. 229, 23940 (E.D.N.Y. 2011) (“Silverberg followed a
long, long line of New York cases which
held or stated that, as a general matter, once
a promissory note is tendered to and
accepted by an assignee, the mortgage
passes as an incident to the note . . . .
Similarly, New York has long recognized
that assignment of the mortgage carries with
it no rights to enforce the debt.”).

Plaintiffs also appear to allege, as a
factual matter, that Countrywide lost
ownership of the 2004 note at some point.
This allegation refers directly to a printout
from the MERS website, and attached to the
complaint, stating that Fannie Mae was the
“investor” in the 2004 note. (Ex. E to
Compl.) Even viewed in a light most
favorable to plaintiffs, this allegation is
insufficient by itself to plausibly state a
fraud claim. The printout is dated February
9, 2011, and thus even if the Court assumed,
in an abundance of caution, that Fannie
Mae’s status as “investor” meant that
Countrywide no longer held the 2004 note,
its lack of ownership of the note in February
of 2011 is not a sufficient allegation to state
a claim that Countrywide committed fraud
in 2008. The MERS printout does not state,

In short, Silverberg was a case about
standing, holding that an entity with a
mortgage but no note lacked standing to
foreclose. Although Silverberg provided
support to mortgagors defending a
foreclosure, it did not provide a windfall to
all mortgagors who transacted with MERS.

6

nor does the complaint allege, anything
concerning who held the note when
Countrywide executed the CEMA.

application and related loan documents
despite knowing that the income data was
false, the complaint states that they did so
“[d]ue to the severe financial stress that the
Plaintiffs faced . . . [and] the reality that they
could not get a loan from any other financial
institution.” (Compl. ¶ 14.)

Moreover, plaintiffs attached the
relevant documents to the complaint, and the
2004 note itself lists Countrywide as the
“Lender” to whom plaintiffs would make
payments. (Ex. B to Compl.). The 2004
note was an exhibit to the 2008 CEMA, in
which Countrywide was also the “Lender”
and “Note Holder.” (Ex. D. to Compl.)
Exhibit A to the CEMA lists the 2004 note
as part of the consolidation, shows that both
documents were recorded with the Nassau
County clerk, and reflects the balance owed
to Countrywide on the 2004 note. (Id.)
Thus, on the face of the relevant documents,
Countrywide held the 2004 note when it
executed the CEMA, and the complaint does
not allege facts to suggest otherwise, much
less the particular facts required by Rule
9(b). Accordingly, plaintiffs’ first theory of
fraud does not state a claim, and is
dismissed.4

Plaintiffs’ financial situation does not
convert their knowing submission of false
information into a cause of action for fraud
against Countrywide. “Under New York
law, the elements of common law fraud are
“a material, false representation, an intent to
defraud thereby, and reasonable reliance on
the representation, causing damage to the
plaintiff.” Chanayil v. Gulati, 169 F.3d 168,
171 (2d Cir. 1999) (quoting Katara v. D.E.
Jones Commodities, Inc., 835 F.2d 966, 97071 (2d Cir. 1987)).
Assuming in a light most favorable to
plaintiffs that the complaint alleges a
material false representation, and even
assuming that Countrywide’s conduct
exhibits an intent to defraud, the complaint
does not allege facts showing reasonable
reliance. It is unreasonable to rely on a
lender’s misstatement of one’s own income,
See
which one knows to be false.6

C. Plaintiffs’ Second Fraud Theory
Plaintiffs’ second theory of fraud alleges
that Countrywide wrote false financial
information into their application for the
2008 mortgage, and instructed plaintiffs to
sign the application even after plaintiffs told
Countrywide that the information was false.
Though both plaintiffs5 admit signing the

6

Defendants have relied on a similar proposition to
argue that plaintiffs waived the fraud claim or ratified
the CEMA by accepting benefits under it with
knowledge that it was obtained with false
information. The Court concludes that plaintiffs’
knowledge of the false data is more properly
analyzed as demonstrating the unreasonableness of
their reliance, since finding waiver or ratification
based upon these same facts would suggest that there
was a viable, but subsequently extinguished, fraud
claim. Furthermore, ratification cases in the real
estate context often involve mortgagors who have
made payments on the mortgages, see, e.g., Moweta
v. Citywide Home Improvements of Queens, Inc., 700
N.Y.S.2d 845 (N.Y. App. Div. 1999), and it is
unclear whether plaintiffs made any payments after
executing the CEMA. Therefore, the Court does not

4

Plaintiffs allege, as evidence of fraud, that a
Countrywide official improperly certified the CEMA
for MERS, and that the agreement was witnessed by
an unlicensed notary. Plaintiffs lack standing to
enforce any MERS regulation against Countrywide,
and even if there is a factual dispute concerning the
validity of the notarization, that fact is not sufficient
on its own to state a claim of fraud.
5
The complaint alleges that, although Philip Knox
was first to receive and sign paperwork containing
false income data, Diana did the same at the closing.
(Compl. ¶ 18.)

7

Hayrioglu v. Granite Capital Funding, LLC,
794 F. Supp. 2d 405, 413 (E.D.N.Y. 2011)
(“[I]t would certainly not have been
reasonable for the plaintiff to rely on
Metropolitan National’s claim that his
monthly income was approximately $7,000
more than he believed it to be.”); see
generally DDJ Mgmt., LLC v. Rhone Grp.
L.L.C., 15 N.Y.3d 147, 154 (2010) (quoting
Schumaker v. Mather, 133 N.Y. 590, 596
(1892) for the rule that “if the facts
represented are not matters peculiarly within
the party’s knowledge, and the other party
has the means available to him of knowing,
by the exercise of ordinary intelligence, the
truth or the real quality of the subject of the
representation, he must make use of those
means, or he will not be heard to complain
that he was induced to enter into the
transaction by misrepresentations,” and
noting that the rule “serves to rid the courts
of cases in which the claim of reliance is
likely to be hypocritical”).
Because
plaintiffs could not have reasonably relied
on information they knew to be false, they
have not stated a claim for fraud.

This principle has been wrought in
the inmost texture of our common
law for at least two centuries. . . .
The doctrine survives because it
serves important public policy
purposes. First, denying judicial
relief to an admitted wrongdoer
deters illegality. Second, in pari
delicto avoids entangling courts in
disputes between wrongdoers. . . .
[T]he principle that a wrongdoer
should not profit from his own
misconduct is so strong in New
York that we have said the defense
applies even in difficult cases and
should not be weakened by
exceptions.
Kirschner v. KPMG LLP, 15 N.Y.3d 446,
464 (2010) (internal quotation marks and
citations omitted).
Here,
plaintiffs
are
“admitted
wrongdoer[s]”—they
admit
in
their
complaint that they signed a mortgage
application which they knew contained false
financial information. Though plaintiffs
allege that Countrywide pressured them,
even in a light most favorable to plaintiffs,
Countrywide’s statement was that they
should sign the paperwork “if the Plaintiffs
wanted to close on the loan that evening.”
(Compl. ¶ 13.) It was the plaintiffs who had
insisted on an expedited closing schedule
because of Diana’s trip abroad (id. ¶ 8), and
they chose the immediacy of the loan over
the accuracy of the application. Thus, they
are at least as culpable as Countrywide, and
their fraud claim must be dismissed. See
Donovan v. Rothman, 756 N.Y.S.2d 514,
515 (N.Y. App. Div. 2003) (affirming
dismissal
where
“[p]laintiffs
were
signatories to the allegedly illegal
agreement”); cf. UCAR, 119 F. App’x at 302
(noting that in pari delicto does not apply
where a plaintiff is forced to act through

To the extent that plaintiffs’ second
fraud claim seeks damages, it is also barred
by the doctrine of in pari delicto. “The in
pari delicto defense prohibits suits in which
the plaintiff is as or more culpable than the
defendant in the conduct forming the basis
for the complaint.” UCAR Int’l, Inc. v.
Union Carbide Corp., 119 F. App’x 300,
301-02 (2d Cir. 2004).
Though the
culpability must be similar, “the law does
not require [the parties’] wrongdoing to be
of an identical nature for the in pari delicto
defense to apply.” Id. at 302. The Court of
Appeals recently reaffirmed the importance
of the in pari delicto defense:

conclude that plaintiffs ratified the CEMA, and finds
it unnecessary to take judicial notice of plaintiffs’
bankruptcy filings, as requested by defendants.

8

“domination and control” but finding none
where plaintiff admitted engaging in willful
behavior).

complaint does not allege consumer-oriented
conduct. “Generally, to state a claim for
violation of Section 349, a plaintiff must
allege facts showing ‘first, that the
challenged act or practice was consumeroriented.’” Hayrioglu, 794 F. Supp. 2d at
410 (quoting Stutman v. Chemical Bank, 95
N.Y.2d 24, 29 (2000)). “To satisfy this
requirement in the context of a real estate
transaction, courts have generally required
that a plaintiff allege that the defendant
affirmatively
and
publicly
sought
transactions with consumers.” Id. (citations
omitted). These cases have addressed “a
broad scheme involving affirmative efforts
to mislead home purchasers about the
condition of the homes being sold, the terms
of their loans, or the lenders’ interests.” Id.
at 412. Here, plaintiffs make no allegations
about Countrywide’s broader practices, nor
that Countrywide sought out transactions
like the CEMA among the public—in fact,
plaintiffs sought out Countrywide because
they could not obtain a loan elsewhere, and
they wanted one quickly. Thus, plaintiffs
allegations describe a “[p]rivate contract
dispute[], unique to the parties, [which do]
not fall within the ambit of the statute.”
Oswego Laborers’ Local 214 Pension Fund
v. Marine Midland Bank, N. A., 85 N.Y.2d
20, 25 (1995).

D. GBL § 349
Plaintiffs also allege that Countrywide
engaged in deceptive business practices in
violation of GBL § 349, but claims under
that section are subject to a three-year
statute of limitations. Gaidon v. Guardian
Life Ins. Co. of Am., 96 N.Y.2d 201, 210
(2001).
The allegations of deceptive
conduct, like the allegations of fraud, relate
to the execution of the CEMA in February
of 2008. Plaintiffs filed this lawsuit on June
7, 2013, and accordingly, any § 349 claim is
time-barred.7
Even if the Court considered the merits
of the § 349 claim, it would fail because the
7

Plaintiffs do not address the statute of limitations in
their brief in opposition to this motion, but they argue
throughout that they did not discover Countrywide’s
fraud until February 9, 2011, when they found the
MERS printout which designates Fannie Mae as the
“investor” on the 2004 note. Construing plaintiffs’
brief liberally, the Court reads that argument as a
request for equitable tolling based on Countrywide’s
concealment of any fraud, which is available for §
349 claims. See M & T Mortg. Corp. v. Miller, 323
F. Supp. 2d 405, 411 (E.D.N.Y. 2004). However,
“[c]oncealment of the cause of action can be
accomplished either by defendant’s contrivance to
commit a wrong in such a manner as to conceal the
very existence of a cause of action, or by actively
misleading the plaintiff into the belief that he had no
cause of action.” Rodriguez v. Vill. of Island Park,
Inc., No. 89-CV-2676, 1991 WL 128568, at *9
(E.D.N.Y. July 2, 1991). Plaintiffs’ allegation that
they discovered fraud in 2011, based on the MERS
printout, does not suggest that Countrywide contrived
to commit a wrong and conceal a cause of action, or
mislead plaintiffs concerning one. As discussed
supra, the fact that Fannie Mae was listed as
“investor” three years after the CEMA does not
suffice as an allegation of fraud.

E. Other Statutory Causes of Action
Other than the New York quiet-title
statute (discussed infra), plaintiffs did not
specify any statutes giving rise to their
causes of action.
Defendants have
nonetheless argued that the complaint does
not state claims under the federal Truth in
Lending Act (TILA). In their opposition
brief, plaintiffs did not address TILA, but
wrote that the complaint contains
“recognizable pleadings regarding NYS
common law and Statutes.” (Pl. Mem. at
12.) Therefore, the Court concludes that
9

plaintiffs did not intend to assert any federal
claims, to include a TILA claim; in any
event, a TILA claim would be time-barred.
See Cardiello v. The Money Store, 29 F.
App’x 780, 781 (2d Cir. 2002) (recognizing
that claims for damages under TILA are
subject to one-year statute of limitations
(citing 15 U.S.C. § 1640(e)); Johnson v.
Scala, No. 05–CV–5529, 2007 WL
2852758, at *3 (S.D.N.Y. Oct. 1, 2007)
(“Case law supports the notion that the
statute of limitations for TILA claims does
not start running upon the discovery of the
non-disclosure, but, rather, upon the funding
of the loan.”); Gorbaty v. Wells Fargo Bank,
N.A., Nos. 10-CV-3291, 10-CV-3354
(NGG)(SMG), 2012 WL 1372260, at *14
(E.D.N.Y. Apr.18, 2012) (noting, where
complaint described “an abusive and
predatory home mortgage loan,” that TILA
amendment specifically addressing high-rate
mortgages does not apply to residential
mortgage transactions).

F. Supp. 2d at 412 (discussing the distinct
facts of four predatory lending cases brought
under § 349); accord Sutherland v. Remax
2000, 872 N.Y.S.2d 693 (N.Y. Sup. Ct.
2008) (“[A] claim for predatory lending
must be dismissed where the allegations are
nothing more than a rehash of [the] fraud
allegations and where the plaintiff is well
aware of her own financial circumstances at
the time she entered into [an] agreement.”
(internal quotation marks and citation
omitted)); Marzan v. Bank of Am., 779 F.
Supp. 2d 1140, 1156 (D. Haw. 2011) (noting
that “[t]he ambiguous term ‘predatory
lending’ potentially encompasses a wide
variety of types of alleged wrongdoing” and
collecting cases indicating that “there is no
common law claim for ‘predatory
lending’”).9
F. Common Law
The complaint makes frequent use of
common-law terminology, some of which
consists of defenses that plaintiffs attempt to

With respect to other possible statutory
claims, defendants note that the term
“predatory lending” is used throughout the
complaint, but argue that plaintiffs have not
stated a claim under any state predatory
lending statute. The Court agrees. Viewing
the complaint as a whole, and construing it
liberally, the term “predatory lending” does
not describe a separate claim, but is instead
used within the complaint’s core assertions
of fraud and deceptive practices. The Court
concludes that the complaint lacks
allegations that would state a separate claim
for predatory lending.8 Cf. Hayrioglu, 794

that the New York Legislature’s response to the
subprime foreclosure crisis, which included several
new statutory provisions, appears to have focused on
the defense of foreclosure actions, and those new
provisions became effective after the execution of the
CEMA in this case. See generally Wells Fargo Bank,
N.A. v. Meyers, 966 N.Y.S.2d 108, 109-10 (N.Y.
App. Div. 2013).
9
Defendants also argue that plaintiffs did not state a
claim under the Real Estate Settlement Procedures
Act (“RESPA”). As noted above, it appears that
plaintiffs did not intend to state any federal claims.
Nonetheless, the Court agrees that the complaint does
not allege a violation of RESPA. That statute “was
enacted . . . to bring about a reduction in settlement
costs. . . . RESPA prohibits, among other things, the
charging of unearned fees for settlement services, the
collection of excess escrow monies, and inaccurate
escrow account reporting, and the imposition of fees
for statements required by RESPA and TILA.”
McAnaney v. Astoria Fin. Corp., 357 F. Supp. 2d
578, 588 (E.D.N.Y. 2010) (citing 12 U.S.C. § 2601,
et seq.).
There are no allegations concerning
settlement services, escrow funds, or the imposition
of fees.

8

To the extent that the complaint addresses the terms
of the consolidated 2008 mortgage and suggests that
they were unfair or deceptive, those allegations do
not state a claim for relief that is distinct from the §
349 or fraud claims. The complaint frames these
allegations as examples of Countrywide’s
unconscionable conduct, which, the Court has noted,
would be a defense in a foreclosure action but is not
an affirmative claim for relief. The Court also notes

10

convert into affirmative claims for relief.
Therefore, to the extent that the complaint
alleges causes of action based on unclean
hands,10 duress, and unconscionability, those
claims are dismissed.
See Precision
Instrument Mfg. Co. v. Automotive
Maintenance Machinery Co., 324 U.S. 806,
814 (1945) (explaining that the unclean
hands defense “closes the doors of a court of
equity to one tainted with inequitableness or
bad faith relative to the matter in which he
seeks relief, however improper may have
been the behavior of the defendant”);
Dunlop-McCullen v. Local 1S AFL-CIOCLC, 149 F.3d 85, 92-93 (2d Cir. 1998)
(noting that defendants’ unclean hands are
relevant to the equitable balance, but when
the doctrine is asserted as a defense); 220V
Elec. Dealer Supply, Inc. v. Rondat, Inc.,
443 N.Y.S.2d 632, 633 (N.Y. Sup. Ct. 1981)
(holding that equitable defenses such as
duress are not bases for affirmative relief);
Ng v. HSBC Mortgage Corp., No. 07-CV5434(RRM)(VVP), 2011 WL 3511296, at
*8 (E.D.N.Y. Aug. 10, 2011) (“Under New
York law, unconscionability is an
affirmative defense to the enforcement of a
contract. . . . A cause of action for
unconscionability may not be used to seek
affirmative relief.”).

enforcement of a contract.” Mendez v. Bank
of Am. Home Loans Servicing, LP, 840 F.
Supp. 2d 639, 653 (E.D.N.Y. 2012). There
is no allegation that defendants performed or
enforced the CEMA in breach of any duty,
and thus the claim alleging a breach of the
duty of good faith and fair dealing is
dismissed.
G. Quiet Title
The one statutory provision cited in the
complaint is the New York Real Property
Actions and Proceedings Law (“RPAPL”)
Article 15, which establishes a “quiet title”
action under New York law. Although the
term “quiet title” was used in common law,
the statutory cause of action does not use
that term.
It exists “to compel the
determination of any claim adverse to that of
the plaintiff which the defendant makes.”
N.Y.R.P.A.P.L. §1501(1).
The Second
Circuit has explained this important
distinction between the common-law and
statutory causes of action:
New York has codified the
common law action to quiet title
and statutorily redefined the
necessary elements for a wellpleaded remaining cloud on title
complaint. Under Article 15 of the
Real
Property
Actions
and
Proceeding Law, the plaintiff need
only plead its claim to an estate or
interest in land and defendant’s
adverse claim; plaintiff need not
plead
the
“invalidity”
of
defendant’s claim as required under
the common law.

Plaintiffs’ claim that defendants
breached the duty of good faith and fair
dealing fails because the allegations relate
solely to the formation of the CEMA.
(Compl ¶ 35.) “New York law does not
recognize a duty of good faith in the
formation of a contract. . . . A good faith
duty only exists in a party’s performance or
10

Defendants have argued that plaintiffs’ claims for
equitable relief are barred by the unclean hands
doctrine, but defendants have not shown how they
were injured by plaintiffs’ conduct. Sheehy v. New
Century Mortg. Corp., 690 F. Supp. 2d 51, 68-69
(E.D.N.Y. 2010).

W. 14th St. Comm. Corp. v. 5 W. 14th
Owners Corp., 815 F.2d 188, 196 (2d Cir.
1987).
The absence of a requirement that a
plaintiff asserting a statutory quiet title claim
11

the assignment to be, the Court will not
decide which Party’s claims are stronger on
a motion to dismiss.”).

plead “invalidity” is especially significant in
this case, where plaintiffs have not plausibly
claimed that defendants’ mortgage interest
in invalid, but where the complaint
sufficiently alleges the statutory elements
described in RPAPL § 1515. Under that
section, an Article 15 claim must include
allegations concerning: (1) the plaintiff’s
interest in the real property, and the
particular nature of the interest; (2) that the
defendant claims an interest in the property
adverse to that of the plaintiff, and the
particular nature of the interest; (3) whether
any defendant is known or unknown, or
incompetent; and (4) whether all interested
parties are named. N.Y.R.P.A.P.L. § 1515;
see also Barberan v. Nationpoint, 706 F.
Supp. 2d 408, 419 (S.D.N.Y. 2010).

For these reasons, the motion to dismiss
is denied with respect to plaintiffs’ claim
under RPAPL Article 15.
H. Leave to Amend
Leave to amend should be freely granted
when justice so requires. Fed. R. Civ. P.
15(a)(2). “This relaxed standard applies
with particular force to pro se litigants.”
Pangburn v. Culbertson, 200 F.3d 65, 70
(2d Cir. 1999).
The Second Circuit has
emphasized that because “[a] pro se
complaint is to be read liberally,” courts
“should not dismiss without granting leave
to amend at least once when a liberal
reading of the complaint gives any
indication that a valid claim might be
stated.” Cuoco v. Moritsugu, 222 F.3d 99,
112 (2d Cir. 2000) (internal quotation marks
and citations omitted). Nonetheless, “[a]
district court has discretion to deny leave for
good reason, including futility.”
See
McCarthy v. Dun & Bradstreet Corp., 482
F.3d 184, 200 (2d Cir. 2007). Leave to
amend is futile if the amended complaint is
meritless and would fail to state a claim. Ho
Myung Moolsan Co., Ltd. v. Manitou
Mineral Water, Inc., 665 F. Supp. 2d 239,
250 (S.D.N.Y. 2009); see also Ashmore v.
Prus, 510 F. App’x 47, 49 (2d Cir. 2013)
(holding that denial of leave to amend was
proper where barriers to relief for pro se
plaintiff “cannot be surmounted by
reframing the complaint”).

Here, the complaint sufficiently alleges
all four elements. The third and fourth
elements do not appear to be disputed, and
plaintiffs have adequately alleged that they
are the deeded owners of the property, and
that defendants claim to have an interest in
the property. (Compl. ¶¶ 1-3.) Although the
complaint does not sufficiently allege that
defendants’ interest was invalidated by fraud
or the other alleged wrongdoing, the
statutory quiet-title claim does not require
that plaintiffs plead anything other than that
defendants have an interest.
As noted
above, the stated purpose of the statutory
cause of action is to determine “any” claim
against plaintiff’s interest. N.Y.R.P.A.P.L.
§ 1501(1): W. 14th St. Comm. Corp., 815
F.2d at 196. Moreover, “[t]he fact that
plaintiff executed the mortgage which he
now seeks to remove as a cloud on title does
not deprive him of the right to maintain the
action.”
Greenberg v. Schwartz, 76
N.Y.S.2d 95 (N.Y. App. Div. 1948); see
also Barberan, 706 F. Supp. 2d at 420
(“However weak Defendants believe
Plaintiffs’ factual claims regarding the
enforceability of the mortgage, the note, and

Here, amending the complaint to replead the dismissed claims would futile.
The first fraud theory is premised on an
inaccurate view of the law, and thus cannot
be repaired through amendment.
The
second fraud theory fails because of
12

(as conceded in the complaint). The latter
fraud claim is also barred by the doctrine of
in pari delicto. The remaining statutory
claims, except for the claim under RPAPL
15, are time-barred and in any event fail to
allege sufficient facts to support a plausible
claim. The purported common-law claims
are not cognizable as affirmative claims for
relief. Leave to amend the fraud, statutory,
and purported common-law claims would be
futile and is denied. However, plaintiffs’
quiet title cause of action under RPAPL
Article 15 does state a claim, and the motion
to dismiss is denied with respect to that
claim only. As discussed supra at note 2,
plaintiffs’ motion to remand is denied.

admissions contained in the complaint itself,
and any amendment would necessarily
conflict with those admissions. The § 349
claim and any possible TILA claim are timebarred, and plaintiffs have not shown any
circumstance warranting equitable tolling.
They knew of the falsity of the income data
when they executed the CEMA in 2008, and
the only new information they claim to have
discovered relates to the MERS printout
from 2011, which does not address the legal
questions about the mortgages and notes
when the CEMA was executed. See supra
note 7 (construing this allegation as an
application for equitable tolling); accord
Rudaj v. Treanor, 522 F. App’x 76, 77-78
(2d Cir. 2013) (affirming denial of leave to
amend where pro se plaintiff claimed
entitlement to equitable tolling based on his
pro se status and misunderstanding of the
law). Plaintiffs also have not indicated that
they are aware of additional facts which
would allow them to state a plausible § 349
or TILA cause of action. See Cuoco, 222
F.3d at 112 (“Cuoco, speaking through
counsel on appeal, has suggested no new
material she wishes to plead. The problem
with Cuoco’s causes of action is substantive;
better pleading will not cure it.”). Finally,
the remaining common law theories do not
state affirmative claims for relief, and could
not be converted into such claims.

SO ORDERED.

______________________
JOSEPH F. BIANCO
United States District Judge
Dated: March 12, 2014
Central Islip, NY
***
Plaintiffs are pro se.
Defendants are
represented by Jason W. Creech, Houser &
Allison, APC, 60 East 42nd Street, Suite 118,
New York, NY 10165.

Therefore, leave to amend the complaint
is denied.
IV. CONCLUSION
Defendants’ motion to dismiss is granted
in part and denied in part. The complaint’s
core assertions of fraud are dismissed
because the alleged splitting of the 2004
mortgage and note does not invalidate the
2004 note or the CEMA, and because
plaintiffs could not reasonably have relied
on income data that they knew to be false
13