U.S. Bank, National Association v. Commonwealth Land Title Insurance Company

Filing 117

MEMORANDUM AND ORDER. For the aforementioned reasons, the motion to dismiss is granted. This Memorandum and Order resolves Docket Nos. 103 and 104. Granting 103 Motion to Dismiss; Granting 104 Motion to Dismiss. (Signed by Judge Naomi Reice Buchwald on 3/23/2015) Copies Mailed By Chambers. (rjm)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------X
U.S. BANK, NATIONAL ASSOCIATION,
Plaintiff,
MEMORANDUM AND ORDER
- against 13 Civ. 7626 (NRB)
COMMONWEALTH LAND TITLE INSURANCE
COMPANY,
Defendant, and
Third-Party
Plaintiff,
- against ANM FUNDING LLC, ABE KLEIN, NOAH
HERSHKOVITZ, LEAH HERSHKOVITS,
TSVINY HERSHKOVITZ, LOWENTHAL &
KOFMAN, P.C., MARTIN KOFMAN,
NORMAN TEPFER, SAMUEL GLUCKMAN,
and ROLAND FIELDS,
Third Party Defendants.
---------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE

Presently before the court is a motion on behalf of thirdparty defendants Lowenthal & Kofman, P.C., Martin Kofman, and
Norman

Tepfer

(collectively,

the

“Lowenthal

defendants”)

to

dismiss the third-party complaint brought by defendant/third-party
plaintiff

Commonwealth

(“Commonwealth”).
granted.

Land

Title

Insurance

Company

For the reasons stated herein, this motion is

BACKGROUND
I.

Factual Background
On

November

Association

(“U.S.

29,

2007,

Bank”)

plaintiff

made

a

loan

U.S.
to

Bank

Laura

National

Fields,

the

repayment of which was to be secured by a mortgage on Fields’s
property.

TPC ¶ 13.

At the closing of the loan and mortgage,

Commonwealth issued U.S. Bank a loan policy insuring the mortgage
as a first lien and indemnifying U.S. Bank against losses suffered
as a result of title defects.

Id. ¶ 22; Cmplt. ¶¶ 16-26.

However,

unbeknownst to both parties, Laura Fields had in fact died one
month before the closing, and her November 2007 mortgage had been
signed by an imposter--a fact U.S. Bank first discovered nearly
two years later, when it unsuccessfully attempted to foreclose on
the mortgage after Fields appeared to default in March 2009.
¶ 20; Cmplt. ¶¶ 27-29.

TPC

U.S. Bank consequently submitted a title

insurance claim to Commonwealth, which Commonwealth denied on
March 1, 2012.

Cmplt. ¶¶ 31, 33.

Commonwealth alleges that fraud on the part of several thirdparty defendants allowed Fields’s death to go undetected and her
mortgage to be signed by an imposter.

Specifically, Commonwealth

alleges that, before the closing, U.S. Bank’s mortgage broker and
several of its employees submitted false credit reports, false
employment verifications, and a false property appraisal in order
to induce U.S. Bank to make the loan.

2

TPC ¶ 14.

At the closing,

Norman Tepfer, a notary and agent of Lowenthal & Kofman, which
acted as U.S. Bank’s settlement agent at the closing, allegedly
fraudulently acknowledged the imposter’s signature as Fields’s.
Id. ¶ 21.

Finally, according to Commonwealth, the Lowenthal

defendants submitted a false HUD-1 after the closing, knowingly
omitting the payment of proceeds to third party who is believed to
have laundered the funds.
II.

Id.

Procedural Background

U.S. Bank filed a complaint on October 28, 2013, alleging
that Commonwealth breached its insurance contract with U.S. Bank
by denying U.S. Bank’s claim, and Commonwealth answered on December
13,

2013.

On

July

17,

2014,

after

a

period

of

discovery,

Commonwealth sought leave to implead parties from whom it sought
indemnification,

citing

the

recent

disclosure

of

a

document

regarding loan disbursement as the basis for the delayed impleader.
On August 6, 2014, we issued an order granting Commonwealth’s
motion, and on August 11, 2014, Commonwealth filed a third-party
complaint (the “TPC”) seeking contribution and/or indemnification
from

several

defendants.

third-party

defendants,

including

the

Lowenthal

The Lowenthal defendants moved to dismiss the TPC on

December 24, 2014, and the motion was fully briefed on February 5,
2014.

3

DISCUSSION
I.

Legal Standard
When ruling on a motion to dismiss pursuant to Federal Rule

of Civil Procedure 12(b)(6), a court must accept as true all
factual allegations in the complaint and draw all reasonable
inferences in plaintiff’s favor.

Harris v. Mills, 572 F.3d 66, 71

(2d Cir. 2009); Kassner v. 2nd Ave. Delicatessen Inc., 496 F.3d
229, 237 (2d Cir. 2007).

A motion to dismiss may be granted only

where “it appears beyond doubt that the plaintiff can prove no set
of facts in support of his claim which would entitle him to
relief.”

Still v. DeBuono, 101 F.3d 888, 891 (2d. Cir. 1996).

Nevertheless, a plaintiff’s “[f]actual allegations must be enough
to raise a right of relief above the speculative level.”

Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); see also Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009).

Thus, a plaintiff must allege

“enough facts to state a claim to relief that is plausible on its
face,” and if a plaintiff “ha[s] not nudged [his] claims across
the line from conceivable to plausible, [his] complaint must be
dismissed.”

Twombly, 550 U.S. at 570.

applies in “all civil actions.”

This pleading standard

Iqbal, 556 U.S. at 684 (internal

quotation marks omitted).

4

II.

Analysis
A. Contribution
First, the Lowenthal defendants assert that the TPC fails to

state a claim for contribution because, under N.Y. C.P.L.R. § 1401,
parties may not seek contribution for purely economic loss and
thus may not seek contribution where, as here, the underlying
action is one for breach of contract.

See Conestoga Title Ins.

Co. v. ABM Title Servs., Inc., 10 Civ. 3017 (CM), 2012 WL 2376438,
at *6 (S.D.N.Y. June 20, 2012) (holding that, under New York law,
“a contribution claim is not available to one . . . potentially
liable

only

contribution

for

breach

available

of
if

contract”
the

measure

and
of

that

“there

damages

is

is

no

purely

economic”).1 Commonwealth concedes that its claim for contribution
is not available under New York law.

See Def’s Br. at 6.

Commonwealth’s claim for contribution is thereby dismissed.

1

See also Bd. of Educ. of Hudson City Sch. Dist. v. Sargent, Webster,
Crenshaw & Folley, 517 N.E.2d 1360, 1364 (N.Y. 1987) (“We find nothing in the
legislative history or the common-law evolution of the statute on which to
base a conclusion that CPLR 1401 was intended to apply in respect to a pure
breach of contract action such as would permit contribution between two
contracting parties whose only potential liability to the plaintiff is for
the contractual benefit of the bargain.”); Trump Vill. Section 3, Inc. v. New
York State Hous. Fin. Agency, 764 N.Y.S.2d 17, 23 (App. Div. 1st Dep’t. 2003)
(“Where a plaintiff's direct claims against a codefendant seek only a
contractual benefit of the bargain recovery, [even] tort language
notwithstanding, contribution is unavailable.”).

5

B. Indemnification
Second, the Lowenthal defendants argue that the TPC fails to
state a claim for indemnification because Commonwealth cannot be
found liable to U.S. Bank without having been found itself at
fault, thereby barring it from receiving indemnification.
In

the

absence

of

contractual

right

to

recovery--which

neither party has here asserted--a “party who has itself actually
participated to some degree in the wrongdoing cannot receive the
benefit of the doctrine [of implied indemnification].”

17 Vista

Fee Assoc. v. Teachers Ins. And Annuity Ass’n of Am., 259 A.D.2d
75, 80 (App. Div. 1st Dep’t 1999). See also Monaghan v. SZS 33
Associates, L.P., 73 F.3d 1276, 1285 (2d Cir. 1996) (“New York
case law supports a proposition . . . that common-law indemnity is
barred altogether where the party seeking indemnification was
itself at fault . . . .”); id. (citing Trustees of Columbia Univ.
v. Mitchell/Giurgola Assocs., 492 N.Y.S.2d 371, 375 (App. Div. 1st
Dep’t. 1985) (“Since the predicate of common law indemnity is
vicarious liability without actual fault on the part of the
proposed indemnitee, it follows that a party who has itself
actually participated to some degree in the wrongdoing cannot
receive the benefit of the doctrine.”)).
Consequently, where the underlying action is one for breach
of contract, a defendant may not seek indemnification because the
defendant, if found liable to the plaintiff in the underlying

6

action, will have necessarily participated in the wrongdoing by
breaching the contract.

See, e.g., Knight v. H.E. Yerkes &

Associates, Inc., 675 F. Supp. 139, 143 (S.D.N.Y. 1987) (“[Where]
the underlying action sounds in contract, not in tort, there is no
possible set of facts on which it can be true that [the defendant]
was not at least partially responsible for harm, for it was [the
defendant] that allegedly breached the contract, not [the thirdparty defendant]. There can therefore be no cause of action in
indemnity.”); Intesa Sanpaolo S.p.A. v. Piliero, 08 Civ. 2223
(LLS), 2008 WL 3465032, at *1 (S.D.N.Y. Aug. 12, 2008) (“New York
law bars [defendant’s] claims against the third-party defendants
for contribution and non-contractual indemnification because the
claim against him is for breach of contract, not a tort.”);
Highland Capital Mgmt., L.P. v. Schneider, 533 F. Supp. 2d 345,
354-55 (S.D.N.Y. 2008) (PKL) (“Fatal to the [defendants’] impliedin-law indemnification claim is that the underlying claim by [the
plaintiff] sounds in contract, and not tort. . . . [I]f the jury
ultimately

finds

[defendants]

that

cannot

[defendants
be

breached

indemnified

by

a

contract],

[the

the

third-party

defendant].”); Amusement Indus., Inc. v. Stern, 693 F. Supp. 2d
319, 326-27 (S.D.N.Y. 2010) (LAK) (“Indemnity is not available
here [because u]nder New York law, indemnification is not available
where the party seeking indemnification was ‘partially at fault’
or ‘responsible in any degree’ . . . . [W]hile Stern asserts he

7

was ‘duped’ by Egert and did nothing wrong, the third-party
complaint does not provide a scenario under which Stern could be
found both free from fault and at the same time liable for damages
to Amusement because of Egert.

In other words, Stern has not

explained how he could be found vicariously liable--or liable in
any other way imputed by law--because of his relationship with
Egert. Accordingly, Stern has not stated a claim for indemnity
against Egert.”).
The TPC, which seeks indemnification for an underlying breach
of

contract,

thus

indemnification.

necessarily

fails

to

state

a

claim

for

Because Commonwealth must have itself breached

the contract to have been found liable to U.S. Bank, it cannot be
said to have incurred damages purely as a result of vicarious
liability or by operation of law.

As a result, the TPC does not

provide a scenario under which Commonwealth could be found both
liable for damages to U.S. Bank and at the same time free from
fault, thereby barring Commonwealth from receiving the benefit of
implied indemnification.
Notably, Commonwealth does not rebut this principle, but
rather reasserts that Commonwealth is entitled to indemnification
as a result of Tepfer’s wrongful notarization of the imposter’s
signature.

Specifically,

Commonwealth

argues

that

Tepfer

is

liable--and the other Lowenthal defendants are vicariously liable-in indemnification to Commonwealth pursuant to N.Y. Exec. Law §

8

135, which states that a notary will be liable to a party for any
damages caused by his misconduct if the party can show both
notarial misconduct and that such misconduct was the proximate
cause of the party’s injury.

It also asserts more generally that

Commonwealth is entitled to indemnification from the Lowenthal
defendants because they “participated in a conspiracy to defraud
plaintiff and cause a forged signature of an imposter to be
acknowledged on a mortgage.”

Def’s Br. at 1.

However, as the Lowenthal defendants counter, Commonwealth
provides no basis on which to conclude that the law barring
Commonwealth’s indemnification claim--namely, that Commonwealth
cannot be both liable to U.S. Bank and free from fault and
therefore cannot seek indemnification--has been abrogated in the
context of notarial misconduct or third-party fraud.

None of the

cases cited by Commonwealth in support of its position controvert
the principle that participation in wrongdoing, and specifically
liability for an underlying breach of contract claim, will bar
indemnification.

See,

e.g.,

Plemmenou

v.

Arvanitakis,

833

N.Y.S.2d 596 (App. Div. 2nd Dep’t. 2007) abrogated on other grounds
by Butler v. Catinella, 58 A.D.3d 145 (App. Div. 2008) (permitting
indemnification based on a notary’s misconduct where the plaintiff
sought to declare a lien held by the bank void, because the action-for

rescission

rather

than

breach

of

contract--could

have

resulted in the bank incurring damages in a judgment for the

9

plaintiff without the bank having been found at fault); In re
Lowbet Realty Corp., 981 N.Y.S.2d 285 (Sup. Ct. 2014) (permitting
indemnification based on allegations of third-party fraud where
the statute governing the underlying action permitted rescission
without a finding of fault).

Indeed, several of the cases cited

by Commonwealth expressly affirm the principle that a defendant’s
claim for indemnification will not lie if the defendant’s liability
is more than vicarious.

See In re Lowbet Realty Corp., 981

N.Y.S.2d at 292-93 (“If [defendant] is found liable to petitioner
for rescission based on fraud, it would not be able to obtain
indemnification,

since

its

loss

would

result

from

its

own

culpability in the transfer of title in violation of petitioner's
rights. Under such circumstances, [its] liability would not be
only vicarious, and [it] would not be entitled to indemnification.
[However], the statutory claims for rescission and an accounting
pursuant to Business Corporation Law § 1114 [brought here] may, in
effect, impose vicarious liability on [defendant] . . . because
section 1114 does not require the court to find the recipient of
the corporate property at fault before setting aside a sale.”);
Am. Home Assur. Co. v. Nausch, Hogan & Murray, Inc., 897 N.Y.S.2d
413 (2010) (“[T]he record is sufficient at this juncture to support
a

theory

therefore

that
an

plaintiffs'
indemnity

liability

claim

is

10

was

vicarious

appropriate.”).

only,

and

Thus,

the

wrongdoing

limitation

on

indemnification

still

applies

and

Commonwealth’s claim for indemnification must be dismissed.
Although we are obligated under this precedent to dismiss the
TPC, we recognize that dismissal of Commonwealth’s recourse to
third parties poses a harsh prospect, which could result in
injustice to Commonwealth should Commonwealth be found liable to
U.S. Bank purely as a result of third parties’ fraud or misconduct
and through no fault of its own.

However, our dismissal of

Commonwealth’s claims for contribution and indemnification does
not necessarily preclude Commonwealth from pursuing direct claims
against the third-party defendants, either for violation of Exec.
Law § 135 or more generally for fraud.2

It should be clear that

we intend to express no view on the ultimate merits of any such
claim(s).

2

While the Lowenthal defendants suggest that such claims would be untimely,
it is not yet apparent that either claim would in fact be time-barred.
Actions for both fraud and violations of Section 135 are governed by a sixyear statute of limitations, see N.Y. C.P.L.R. § 213; Bank of New York Fin.
Corp. v. Mitchell-B.J. Ltd., 634 N.Y.S.2d 486, 487 (App. Div. 1st Dep’t.
1995), such that claims here would be untimely if measured from the date of
the loan and notarization, in November 2007. However, claims for fraud may
run from discovery of the alleged fraud rather than from the date of
notarization. See N.Y. C.P.L.R. § 213(8) (“[T]he time within which the
action must be commenced shall be the greater of six years from the date the
cause of action accrued or two years from the time the plaintiff . . .
discovered the fraud, or could with reasonable diligence have discovered
it.”). Likewise, case law suggests that a cause of action under § 135 will
not accrue until injury, i.e. the party has parted with its money. See,
e.g., Marine Midland Bank, N.A. v. Stanton, 556 N.Y.S.2d 815, 817 (Sup. Ct.
Monroe Cnty. 1990) (“Section 135 of the Executive Law creates a cause of
action for persons injured by reason of notarial misconduct. By its very
language there is no cause of action absent injury. Therefore, it follows
that the misconduct is not the triggering factor for computation of the
statute of limitations, but rather the injury.”). As a result, Commonwealth
may yet be able to bring such claims against third-party defendants.

11

--------------····-------····-----------------------------------------

CONCLUSION

For the
granted.

aforementioned

reasons,

the

motion

to

dismiss

This Memorandum and Order resolves Docket Nos. 103 and

104.
SO ORDERED.

Dated:

is

New York, New York
March 23, 2015
NAOMI REIC~ALD
UNITED STATES DISTRICT JUDGE

12

-----------------------------

Copies of the foregoing Memorandum
this date to the following:

&

Jeffrey J. Cunningham, Esq.
Wilson, Elser, Moskowitz,
Edelman & Dicker LLP
150 East 42nct Street
New York, NY 10017-5639
David K. Fiveson, Esq.
Butler, Fitzgerald, Fiveson & McCarthy
9 East 45th Street, 9th Floor
New York, NY 10017
Robert J. Shainess, Esq.
Capstone Law, LLC
Canadian Pacific Plaza
120 South Sixth Street, Suite 1720
Minneapolis, MN 55402
Avinoam Y. Rosenfeld
Rosenfeld Law Office
156 Harborview South
Lawrence, NY 11559
Leopold Gross, Esq.
Law Office of Solomon E. Antar
26 Court Street, Suite 1200
Brooklyn, NY 11242

13

Order have been mailed on