Knight-Hurney et al v. Suffolk County National Bank

Filing 25

MEMORANDUM & ORDER denying as moot 3 Motion to Remand to State Court; granting 9 Motion to Dismiss; For the foregoing reasons, SCNB's motion to dismiss (Docket Entry 9) is GRANTED insofar as it seeks dismissal of Plaintiffs' TILA c laim and this claim is DISMISSED WITH PREJUDICE. Plaintiffs' remaining state law claims are REMANDED to the Supreme Court of the State of New York, County of Suffolk. Plaintiffs' motion to remand the state law claims (Docket Entry 3), which seeks remand on different grounds than those stated herein, is DENIED AS MOOT. The Clerk of the Court is directed to mark this matter CLOSED. So Ordered by Judge Joanna Seybert on 9/30/2014. C/ECF (Valle, Christine)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------------X
CAROL KNIGHT-HURNEY and WALTER HURNEY,
Plaintiffs,
MEMORANDUM & ORDER
14-CV-1092(JS)(AKT)

-againstSUFFOLK COUNTY NATIONAL BANK,

Defendant.
---------------------------------------X
APPEARANCES
For Plaintiffs:
Matthew J. Barnes, Esq.
Barnes & Barnes, P.C.
445 Broadhollow Road, Suite 229
Melville, NY 11747
For Defendant:

Marianne McCarthy
Cullen and Dykman Bleakley Platt, LLP
100 Quentin Roosevelt Boulevard
Garden City, NY 11530

SEYBERT, District Judge:
Plaintiffs Carol Knight-Hurney (“Mrs. Knight-Hurney”)
and Walter Hurney (“Mr. Hurney,” and together with Mrs. KnightHurney, “Plaintiffs”) originally commenced this action in New
York

State

Supreme

Court

against

Defendant

Suffolk

County

National Bank (“SCNB”), asserting violations of the Truth in
Lending Act (“TILA”), 15 U.S.C. § 1601, et seq., and state law
claims

of

rescission

based

upon

economic

duress,

unjust

enrichment, and deceptive trade practices in violation Section
349 of the New York General Business Law.
SCNB removed the action to this Court.

On February 20, 2014,

Currently

pending

before

the

Court

are:

(1) Plaintiffs’ motion to remand the state law claims to state
court and to hold in abeyance the TILA claim pending resolution
of the state law claims (Docket Entry 3); and (2) SCNB’s motion
to

dismiss

Plaintiffs’

claims

under

TILA

and

the

New

York

General Business Law for failure to state a claim pursuant to
Federal Rule of Civil Procedure 12(b)(6) (Docket Entry 9).
the

following

reasons,

SCNB’s

motion

to

dismiss

is

For

GRANTED

insofar as it seeks dismissal of Plaintiffs’ TILA claim and the
state law claims are REMANDED to the Supreme Court.
BACKGROUND
I.

Factual Background1
Plaintiffs are husband and wife.

(Compl. ¶ 3.)

Mrs.

Knight-Hurney is the fee owner of real property located at 60
Old

Homestead

Road

in

resides with Mr. Hurney.
sole

officer

and

Port

Jefferson,

New

(Compl. ¶¶ 8-9.)

shareholder

of

Walter

York,

where

she

Mr. Hurney is the
Hurney

Realty,

Inc.

(“WHRI”) and also is a member of Mt. Sinai LLC (“Mt. Sinai”).
(Compl. ¶¶ 10-11.)
the

ownership

properties.

WHRI and Mt. Sinai are companies engaged in

and

(Compl.

management
¶ 12.)

of
SCNB

1

commercial
is

a

banking

real

corporation

The following facts are taken from the Complaint and are
presumed to be true for the purposes of this Memorandum and
Order.
2

estate

organized under the laws of New York with a principal place of
business in Riverhead, New York.

(Compl. ¶ 4.)

In 2004, WHRI obtained an unsecured commercial line of
credit from SCNB (the “2004 Line of Credit”).

(Compl. ¶ 13.)

In May 2009, Plaintiff advised SCNB that WHRI could no longer
repay the principal amount on the 2004 Line of Credit due to the
failing real estate market and resulting financial difficulties.
(Compl. ¶¶ 15-16.)

Plaintiffs claim that SCNB “insisted” that

Mr. Hurney not default on the 2004 Line of Credit and promised
that it would make additional extensions of credit to defer
WHRI’s repayment terms as a “temporary fix.”

(Compl. ¶¶ 18-19.)

Plaintiffs further claim that that SCNB “promised . . . that it
would

forgive

the

extensions of credit.
SCNB

balances

accrued”

on

these

additional

(Compl. ¶ 20.)

“routinely

instructed

[Mr.

Hurney]

to

make

written ‘request[s] for extensions’ on behalf of WHRI so that
SCNB could process the loan extensions and thereby defer any
default by WHRI.”

(Compl. ¶ 21.)

As a result, by August 2009,

WHRI owed SCNB over $470,000 in additional commercial loans.
(Compl. ¶ 22.)

However, Plaintiffs claim that due to an SEC

investigation into these types of lending practices, SCNB then
“rebuked

its

prior

practices

and

began

threating

plaintiffs

regarding the WHRI commercial credit lines” and additional loans
Mt. Sinai had obtained from SCNB between 1998 and 2005.
3

(Compl.

¶ 24.)

On August 12, 2009, notwithstanding the fact that the

loans were not in default, SCNB allegedly threatened to “call”
the WHRI and Mt. Sinai loans and place a lien on Mrs. KnightHurney’s home unless Plaintiffs granted SCNB a security interest
in Mrs. Knight-Hurney’s home.

(Compl. ¶ 25.)

Plaintiffs claim that, given their tenuous financial
situation,

they

had

no

choice

other

than

to

grant

security interest in Mrs. Knight-Hurney’s home.
33.)

SCNB

the

(Compl. ¶¶ 30-

On August 12, 2009, Mr. Hurney and Mrs. Knight-Hurney each

signed a Commercial Security Agreement “which purported to grant
a security interest in [Mrs. Knight-Hurney’s] personal residence
to

secure

Commercial

the

commercial

Security

lines

Agreement”).

owed

by

(Copml.

WHRI”
¶ 33.)

(the

“2009

Plaintiffs

allege that they did not have an opportunity to review the 2009
Commercial Security Agreement and that SCNB failed to disclose
required

lending

disclosures.

(Compl.

¶¶ 34-35.)

In

conjunction with the 2009 Commercial Security Agreement, WHRI
entered into a separate promissory note to pay SCNB the sum of
$478,950,

which

approximately

“required

$3,200

per

interest-only

month”

(the

“August

payments
2009

of

Note”).

(Compl. ¶¶ 37-38.)
In

November

2011,

WHRI

and

Plaintiffs

advised

SCNB

that they “were having difficulty” paying the August 2009 Note.
(Compl. ¶ 39.)

In response, SCNB, allegedly in effort “to cover
4

up its prior malfeasance,” “insisted” that Plaintiffs refinance
and consolidate Plaintiff’s original home debt (a mortgage of
approximately

$160,000)

with

the

WRHI

debt

secured

residence ($480,000) for a combined lien of $640,000.
¶ 40.)

Plaintiffs’

loan

application

was

initially

by

the

(Compl.
denied

because of an excessive debt-to-income ratio but SCNB eventually
approved the loan in July 2012.

(Compl. ¶¶ 42-48.)

On November

26, 2012, Plaintiffs executed a thirty-year promissory note for
$640,000,
Hurney’s

secured
home

by

(the

a

single-lien

“November

2012

mortgage

on

Refinance

Mrs.

Knight-

Transaction”).

(Compl. ¶ 49.)
The Complaint asserts four causes of action based on
the

foregoing

allegations.

In

the

first

cause

of

action,

Plaintiffs allege that SCNB violated TILA in connection with the
November 2012 Refinance Transaction because it failed to make
certain required disclosures regarding the loan and also failed
to make a reasonable and good faith determination as to whether
Plaintiffs could repay the loan.

(Compl. ¶¶ 52-58.)

Plaintiffs

seek rescission of the refinanced and consolidated loan pursuant
to 15 U.S.C. § 1635 and 12 C.F.R. § 226.23 and also ask the
Court to “void[ ] the security interest” in Mrs. Knight-Hurney’s
home.

(Compl ¶¶ 55-57.)

The three remaining counts assert New

York state law claims seeking redress for SCNB’s conduct in

5

connection with the 2009 Commercial Security Agreement.

(Compl.

¶¶ 59-76.)
II.

Procedural Background
Plaintiff originally commenced this action in New York

State Supreme Court, Suffolk County, on November 22, 2012.

On

February 20, 2014, SCNB removed the action to this Court based
on

federal

§ 1441(a).

question

jurisdiction

(Docket Entry 1.)

pursuant

to

28

U.S.C.

On February 28, 2014, Plaintiffs

moved to sever and remand the state law claims to state court
and to hold in abeyance the TILA claim pending resolution of the
state law claims.

(Docket Entry 3.)

On March 28, 2014, SCNB

moved to dismiss Plaintiffs’ claims under TILA and the New York
General Business Law for failure to state a claim pursuant to
Federal Rule of Civil Procedure 12(b)(6).

(Docket Entry 9.)

These motions are currently pending before the Court.
DISCUSSION
As

noted,

there

are

two

motions

currently

pending

before the Court--Plaintiffs’ motion to remand their state law
claims and SCNB’s motion to dismiss Plaintiff’s claims under
TILA and the New York General Business Law.

The parties do not

dispute the order in which these motions should be addressed.
As a general rule, “when an action is removed from state court,
the district court first must determine whether it has subject
matter

jurisdiction

over

the

claims
6

before

considering

the

merits of a motion to dismiss . . . .”

Macro v. Independent

Health Ass’n, Inc., 180 F. Supp. 2d 427, 431 (W.D.N.Y. 2001).
Here, there is no dispute that the Court has federal question
jurisdiction over Plaintiff’s TILA claim, and Plaintiffs seek
only to remand the state law claims, arguing that the Court
lacks supplemental jurisdiction over them.

Since the Court has

jurisdiction to decided SCNB’s motion to dismiss insofar as it
seeks

dismissal

of

the

TILA

claim

and

since

supplemental

jurisdiction of the state law claims depends in part on whether
a viable federal claims exists in this action, see One Commc’ns
Corp. v. J.P. Morgan SBIC LLC, 381 F. App’x 75, 82 (2d Cir.
2010) (“If all of a plaintiff’s federal claims are dismissed, a
district

court

is

well

within

its

discretion

to

decline

to

assert supplemental jurisdiction over any state law claims.”),
the Court will first address SCNB’s motion to dismiss the TILA
claim.
As discussed below, Plaintiffs’ TILA claim fails as a
matter of law and the Court declines to exercise supplemental
jurisdiction over the remaining state law claims and remands
them to the Supreme Court.
I.

TILA Claim
The Court will first set forth the applicable legal

standard for a motion to dismiss before turning to SCNB’s motion
specifically.
7

A.

Legal Standard
In deciding a Rule 12(b)(6) motion to dismiss, the

Court

applies

a

“plausibility

“[t]wo working principles.”

standard,”

which

is

guided

by

Ashcroft v. Iqbal, 556 U.S. 662,

678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) (citing Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d
929 (2007); accord Harris v. Mills, 572 F.3d 66, 71–72 (2d Cir.
2009).

First, although the Court must accept all allegations as

true, this “tenet” is “inapplicable to legal conclusions;” thus,
“[t]hreadbare recitals of the elements of a cause of action,
supported

by

mere

conclusory

statements,

do

not

suffice.”

Iqbal, 556 U.S. at 678; accord Harris, 572 F.3d at 72.

Second,

only complaints that state a “plausible claim for relief” can
survive a Rule 12(b)(6) motion to dismiss.
679.

Iqbal, 556 U.S. at

Determining whether a complaint does so is “a context-

specific task that requires the reviewing court to draw on its
judicial experience and common sense.”

Id.; accord Harris, 572

F.3d at 72.
B.

SCNB’s Motion to Dismiss
As noted, Plaintiffs allege that SCNB violated TILA in

connection with the November 2012 Refinance Transaction because
it failed to make certain required disclosures regarding the
refinanced

and

consolidated

loan

and

also

failed

to

make

a

reasonable and good faith determination as to whether Plaintiffs
8

could

repay

rescission

the

of

loan.

the

(Compl.

loan

¶¶ 52-58.)

pursuant

to

15

Plaintiffs

U.S.C.

§ 1635

seek

and

12

C.F.R. § 226.23 and also ask the Court to “void[ ] the security
interest” in Mrs. Knight-Hurney’s home.
SCNB

argues

that

dismissed on three grounds.

Plaintiff’s

(Compl ¶¶ 55-57.)
TILA

claim

should

be

First, SCNB argues that TILA does

not apply to the November 2012 Refinance Transaction because
that transaction “was primarily for business purposes,” making
it exempt from TILA’s coverage.

(Def.’s Br. to Dismiss & in

Opp. to Pl.’s Mot. to Remand (“Def.’s Br.”), Docket Entry 10, at
4-5.)

Second, SCNB argues that the TILA claim must be dismissed

because Plaintiffs “have not pleaded their ability to tender
back

the

original

loan

principal.”

(Def.’s

Br.

at

6-7.)

Finally, SCNB argues that TILA’s right of rescission does not
apply to the November 2012 Refinance Transaction because under
Section 1635(e)(2) of TILA and 12 C.F.R. § 226.23(f)(2), the
right

of

rescission

does

not

apply

consolidation of a mortgage loan.
Entry 14, at 4-6.)

to

the

refinancing

or

(Def.’s Reply Br., Docket

As discussed below, the TILA claim must be

dismissed because TILA’s right of rescission does not apply to
the November 2012 Refinance Transaction as a matter of law.
Since the Court dismisses the TILA claim on this ground, it will
not address SCNB’s additional grounds for dismissal.

9

The

main

purpose

of

TILA

is

“to

assure

meaningful

disclosure of credit terms, avoid the uninformed use of credit,
and to protect the consumer against inaccurate and unfair credit
billing and credit card practices.”
Corp.,

357

F.

Supp.

2d

omitted).

Of

relevance

“consumers

entering

578,

McAnaney v. Astoria Fin.

583

here,

certain

(E.D.N.Y.

under

2005)

Section

credit

(citations

1635

transactions

of

TILA,

involving

security interests in their principal dwelling have a right to
rescind the transaction until midnight on the third business day
after the credit transaction, delivery of the rescission notice,
or delivery of all material disclosures, whichever is latest.”
Barberan v. Nationpoint, 706 F. Supp. 2d 408, 421 (S.D.N.Y.
2010)

(citing

receive

15

certain

U.S.C.

§ 1635).

disclosures,

“If

the

Loans,

(citing

Inc.,

886

Barberan,

706

F.
F.

Supp.

2d

Supp.

borrower

right

transaction extends for three years.”
Home

a

to

does

rescind

not
the

Kahraman v. Countrywide
114,

2d

at

118

(E.D.N.Y.

421-22;

15

2012)
U.S.C.

§ 1635(f); and 12 C.F.R. § 226.23(a)(3)).
However,
promulgated

by

the

Section
Federal

1635

of

Reserve

TILA
Board

and

the

under

regulations
Section

1635

partially exempt refinancing and consolidation transactions from
the

right

of

rescission.

Specifically,

exempts:

10

Section

1635(e)(2)

a
transaction
which
constitutes
a
refinancing or consolidation (with no new
advances) of the principal balance then due
and any accrued and unpaid finance charges
of an existing extension of credit by the
same creditor secured by an interest in the
same property.
15 U.S.C. § 1635(e)(2).
(f)

Similarly, the regulations state:

Exempt
transaction.
rescind
does
not
following:
(2)

The
right
apply
to

to
the

A refinancing or consolidation by
the same creditor of an extension
of credit already secured by the
consumer’s principal dwelling. The
right of rescission shall apply,
however, to the extent the new
amount financed exceeds the unpaid
principal
balance,
any
earned
unpaid
finance
charge
on
the
existing
debt,
and
amount
attributed solely to the costs of
refinancing or consolidation.

12 C.F.R. § 226.23(f).
These provisions apply directly to this case.

There

is no dispute that the August 2012 Refinance Transaction simply
consolidated,

for

a

combined

lien

of

$640,000,

Mrs.

Knight-

Hurney’s original home debt (a mortgage of $160,000) with the
WRHI debt ($480,000), which was already secured by the residence
pursuant to the 2009 Commercial Security Agreement.
¶ 40.)
advanced”

Plaintiffs
by

SCNB

admit
in

that

either

“there
the

were

no

November

(Compl.

loan
2012

proceeds
Refinance

Transaction or the 2009 Commercial Security Agreement.

11

(Pl.’s

Br. in Opp. to Mot. to Dismiss & in Supp. of Mot. to Remand,
Docket Entry 12, at 8.)

Thus, pursuant to Section 1635(e)(2) of

TILA and 12 C.F.R. § 226.23(f), TILA’s right of rescission does
not

apply

to

the

2012

November

Refinance

Transaction.

See

Kahraman, 886 F. Supp. 2d at 119 (“Section 226.23(f)(2) clearly
governs plaintiffs’ rescission rights under TILA, and plaintiffs
have presented no legal argument why they are otherwise entitled
to rescission of their entire loan, or to a complete release of
[defendant’s]

security

interest,

which

predated

their

refinancing.”).
Accordingly, SCNB’s motion to dismiss Plaintiffs’ TILA
claim is GRANTED and this claim is DISMISSED WITH PREJUDICE.
II.

State Law Claims
Since the Court has dismissed Plaintiffs’ TILA claim,

there

is

no

longer

a

basis

Plaintiffs’ state law claims.

for

federal

jurisdiction

over

Ordinarily, “‘[w]hen all bases

for federal jurisdiction have been eliminated from a case so
that only pendent state claims remain, the federal court should
ordinarily dismiss the state claims.’”

Clorofilla v. Town of

New Castle, 106 F. App’x 90, 92 (2d Cir. 2004) (quoting Baylis
v. Marriott Corp., 843 F.2d 658, 665 (2d Cir. 1988)).

However,

in situations like this, “[w]here the state claims originally
reached the federal forum by removal from a state court, the
district court has the discretion to dismiss the claims without
12

prejudice or remand them to the state court.”

Baylis, 106 F.

App’x at 665 (citing Carnegie–Mellon Univ. v. Cohill, 484 U.S.
343, 108 S. Ct. 614, 98 L. Ed. 2d 720 (1988)).

Accordingly, the

state law claims against SCNB are REMANDED to the New York State
Supreme Court, Suffolk County.

See Star Multi Care Servs., Inc.

v. Empire Blue Cross Blue Shield, --- F. Supp. 2d ----, 2014 WL
1057332, at *14 (E.D.N.Y. Mar. 19, 2014).

Plaintiffs’ motion to

remand the state law claims, which seeks remand on different
grounds, is therefore DENIED AS MOOT.
CONCLUSION
For the foregoing reasons, SCNB’s motion to dismiss
(Docket Entry 9) is GRANTED insofar as it seeks dismissal of
Plaintiffs’
PREJUDICE.
to

the

Suffolk.

TILA

claim

and

this

claim

is

DISMISSED

WITH

Plaintiffs’ remaining state law claims are REMANDED

Supreme

Court

of

the

State

of

New

York,

County

of

Plaintiffs’ motion to remand the state law claims

(Docket Entry 3), which seeks remand on different grounds than
those stated herein, is DENIED AS MOOT.

The Clerk of the Court

is directed to mark this matter CLOSED.
SO ORDERED.

/s/ JOANNA SEYBERT
Joanna Seybert, U.S.D.J.
Dated:

September __30__, 2014
Central Islip, NY

13