Bank of New York as Trustee v. Bates et al

Filing 26

MEMORANDUM (Order to follow as separate docket entry) re 14 MOTION to Dismiss amended Complaint filed by Richard Bates, Amy J. Bates Signed by Honorable Malachy E Mannion on 3/28/14. (bs)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF PENNSYLVANIA
BANK OF NEW YORK AS
:
TRUSTEE FOR
CERTIFICATEHOLDERS
:
CWABS, INC. ASSET-BACKED
CERTIFICATES, SERIES 2006-24, :
Plaintiff

(JUDGE MANNION)

:

v.

CIVIL ACTION NO. 3:13-0690

:

AMY J. BATES f/k/a
AMY J. JONES and
RICHARD BATES,
Defendants

:
:
:
MEMORANDUM

Pending before the court is the defendants’ motion to dismiss the
plaintiff’s amended complaint, (Doc. 14). Based upon the court’s review of the
motion and related materials, the defendants’ motion to dismiss will be
DENIED.
The defendants’ motion to dismiss is brought pursuant to the provisions
of Fed.R.Civ.P. 12(b)(6). This rule provides for the dismissal of a complaint,
in whole or in part, if the plaintiff fails to state a claim upon which relief can be
granted. The moving party bears the burden of showing that no claim has
been stated, Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005), and
dismissal is appropriate only if, accepting all of the facts alleged in the
complaint as true, the plaintiff has failed to plead “enough facts to state a
claim to relief that is plausible on its face,” Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 127 S. Ct. 1955, 1974 (2007) (abrogating “no set of facts” language
found in Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). The facts alleged must
be sufficient to “raise a right to relief above the speculative level.” Twombly,
550 U.S. 544, 127 S. Ct. at 1965. This requirement “calls for enough fact[s]
to raise a reasonable expectation that discovery will reveal evidence of”
necessary elements of the plaintiff’s cause of action. Id. Furthermore, in order
to satisfy federal pleading requirements, the plaintiff must “provide the
grounds of his entitlement to relief,” which “requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action
will not do.” Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008)
(brackets and quotations marks omitted) (quoting Twombly, 550 U.S. 544,
127 S. Ct. at 1964-65).
In considering a motion to dismiss, the court generally relies on the
complaint, attached exhibits, and matters of public record. See Sands v.
McCormick, 502 F.3d 263 (3d Cir. 2007). The court may also consider
“undisputedly authentic document[s] that a defendant attaches as an exhibit
to a motion to dismiss if the plaintiff’s claims are based on the [attached]
documents.” Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d
1192, 1196 (3d Cir. 1993). Moreover, “documents whose contents are alleged
in the complaint and whose authenticity no party questions, but which are not
physically attached to the pleading, may be considered.” Pryor v. Nat’l
Collegiate Athletic Ass’n, 288 F.3d 548, 560 (3d Cir. 2002). However, the
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court may not rely on other parts of the record in determining a motion to
dismiss. See Jordan v. Fox, Rothschild, O’Brien & Frankel, 20 F.3d 1250,
1261 (3d Cir. 1994).
Generally, the court should grant leave to amend a complaint before
dismissing it as merely deficient. See, e.g., Fletcher-Harlee Corp. v. Pote
Concrete Contractors, Inc., 482 F.3d 247, 252 (3d Cir. 2007); Grayson v.
Mayview State Hosp., 293 F.3d 103, 108 (3d Cir. 2002); Shane v. Fauver, 213
F.3d 113, 116-17 (3d Cir. 2000). “Dismissal without leave to amend is justified
only on the grounds of bad faith, undue delay, prejudice, or futility.” Alston v.
Parker, 363 F.3d 229, 236 (3d Cir. 2004).
Accepted as true, the allegations of the plaintiff’s amended complaint
provide that defendant Amy J. Bates, formerly known as Amy J. Jones,
(“Bates/Jones”), is the owner of a parcel of real property located at 1712
Forest Acres Drive, Clarks Summit, PA, (“Residential Property”).
On March 24, 2000, Bates/Jones received a loan for $105,000 from
Saxon Mortgage, Ltd. secured by a mortgage on the Residential Property.
The plaintiff later married defendant Richard Bates.
On March 19, 2003, the defendants acquired a 1.91 acre parcel of
vacant property adjacent to the Residential Property from Bates/Jones’
relative, Shirley Cosner, for $1.00, (“Vacant Property”). The Vacant Property
and the Residential Property have distinct legal descriptions, but the same
mailing address.
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In or around October 2006, Bates/Jones approached Franklin First
Financial, Ltd., (“Franklin”), and requested a loan which was to be used, in
part, to pay off the amounts under the Saxon Loan and which was to be
secured against the Residential Property.
On October 19, 2006, Bates/Jones, in her own name and without the
participation of Mr. Bates, submitted a loan application to Franklin through
which she sought a loan in the amount of $164,500 to refinance the
Residential Property located at 1712 Forest Acres Drive, Clarks Summit, PA.
In the application, Bates/Jones represented, among other things, that:
a.

Property located at 1712 Forest Acres Drive, Clarks
Summit, PA would be used to secure the loan;

b.

The property located at 1712 Forest Acres Drive, Clarks
Summit, PA, which would be used to secure the loan would
be her “primary residence”;

c.

The property located at 1712 Forest Acres Drive, Clarks
Summit, PA, which would be used to secure the loan was
a single family residence;

d.

The property located at 1712 Forest Acres Drive, Clarks
Summit, PA, which would be used to secure the loan had a
value of $235,000; and

e.

She intended to occupy the property which would be used
to secure the loan as her “primary residence.”
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Although Mr. Bates did not sign the loan application because he was not
an owner of the intended collateral, i.e., the Residential Property, he at all
times knew and understood that the loan was to be used, in part, to pay off
the Saxon Loan and that the loan was to be secured against the Residential
Property. In addition, Mr. Bates signed the mortgage securing the loan and
represented therein that he would occupy the property securing the loan as
his principal residence.
In connection with the loan application, an appraisal was obtained on
October 19, 2006, which reflected that the property located at 1712 Forest
Acres Drive, Clarks Summit, PA, which would be used to secure the loan:
a.

Is a single family residence with 2004 square feet of
improved space, consisting of a total of (5) rooms, including
two (2) bedrooms and two (2) bathrooms;

b.

“Is a ranch style home erected in 2005 with some finish
work needed such as trim and several closet doors. There
is a full basement under the living area and a crawl space
under the porch;

c.

Is situated on a 1.931 acre parcel of property;

d.

Is worth $235,000.

The appraisal included a “Subject Photo Page” with photographs
depicting the property located at 1712 Forest Acres Drive, Clarks Summit, PA,
which would be used to secure the loan as a residence, not a vacant lot.
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Bates/Jones signed an Appraisal Disclosure on October 19, 2006,
acknowledging the Appraisal.
In connection with the loan application, Bates/Jones submitted an
insurance policy proof of coverage to Franklin. The Proof of Insurance
indicated that defendants had secured insurance to cover a “dwelling” or
“residence premises” that is located at 1712 Forest Acres Drive, Clarks
Summit, PA.
Based on Bates/Jones’ representations in the loan application and the
Proof of Insurance and the information in the Appraisal that Bates/Jones
acknowledged, on October 19, 2006, Franklin granted a loan to Bates/Jones
in the amount of $164,500. The terms of the loan, including Franklin’s and
Bates/Jones’ respective rights, duties, entitlements, and liabilities, were
memorialized in a written contract, (the “Franklin Note”), which Bates/Jones
signed. Above Bates/Jones’ signature on the signature page of the Franklin
Note is the statement “WITNESS THE HAND(S) AND SEAL(S) OF THE
UNDERSIGNED,” and the pre-printed word “Seal” appears directly next to
Bates/Jones’ signature.
The Franklin Note provided that in exchange for the sums provided by
Franklin, Bates/Jones was required to pay Franklin the principal balance of
$164,500 plus interest and other charges. Bates/Jones agreed that she would
make monthly payments on the first day of each month beginning on
December 1, 2006, until all sums due under the Franklin Note were satisfied.
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Bates/Jones further agreed that she would be in default if she failed to pay the
full amount of each monthly payment on the date it was due and that in the
event of such default, Franklin would have the right to require her to pay the
full amount of principal that had not been paid and all outstanding interest.
The Franklin Note provided that if Bates/Jones failed to make payments as
required under the terms of the Franklin Note, “The Note Holder will have the
right to be paid back by [Bates/Jones] for all of its costs and expenses in
enforcing this Note to the extent not prohibited by applicable law. Those
expenses include, for example reasonable attorneys’ fees.”
As security for the Franklin Note, Bates/Jones and Mr. Bates executed
a mortgage in favor of Mortgage Electronic Registration Systems, Ltd.,
(“MERS”), as nominee for Franklin, (“Franklin Mortgage”). The Franklin
Mortgage is recorded in the Office of the Recorder of Lackawanna County in
instrument #200631882. The Franklin Mortgage was thereafter assigned by
MERS, as nominee for Franklin, to Bank of New York as Trustee for the
Certificateholders CWABS, Inc. Asset-Backed Certificates, Series 2006-24,
the plaintiff herein, by Assignment of Mortgage which has been recorded in
the Office of Recorder of Lackawanna County as Instrument #200804237.
By executing the Franklin Mortgage, the defendants covenanted that
they would occupy the encumbered property as their “principal residence.”
The Franklin Mortgage stated that the encumbered property was located at
1712 Forest Acres Drive, Clarks Summit, PA, which is the street address for
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the Residential Property. However, the legal description of the property
encumbered by the Franklin Mortgage erroneously listed only that of the
Vacant Property. On information and belief, at or before the time they
executed the Franklin Mortgage, defendants knew that the Franklin Mortgage
erroneously omitted the legal description of the Residential property, and
defendants deliberately failed to disclose or correct this error.
Bates/Jones used the money obtained through the Franklin Note to
satisfy the debt owed under the Saxon Loan and, upon information and belief,
to pay off approximately $30,000 of Bates/Jones’ and/or Mr. Bates’ credit card
debt.
Defendant Bates/Jones is in default under the Franklin Note in that the
monthly payments of principal and interest that were due on June 1, 2007,
and each month thereafter, are due and unpaid. Plaintiff, by and through its
former counsel, sent written notice to Bates/Jones advising her that she was
in default under the Franklin Note and Mortgage and that if she failed to cure
the default within thirty days, the entire balance of the loan would be due
immediately. Bates/Jones failed to cure the default within thirty days or at any
time thereafter.
Based upon the above allegations, the plaintiff brought the instant threecount action: Count I - Default/Breach of Contract against defendant
Bates/Jones; Count II - Reformation by Mutual Mistake against both
defendants; and Count III - Reformation by Unilateral Mistake against both
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defendants.
In their motion to dismiss the plaintiff’s amended complaint, the
defendants initially argue that the plaintiff’s breach of contract claim is barred
by the four-year statute of limitations set forth in 13 Pa.C.S.A. §2725, Statute
of Limitations in Contracts for Sale. Because the instant action does not
allege a breach of a contract for sale, but instead alleges a breach of contract
in relation to a promissory note – the Franklin Note – §2725 is inapplicable
and the defendants’ motion to dismiss will be denied on this basis.
Defendants further argue that the plaintiff’s claims for reformation are
barred by the four-year statute of limitations set forth in 42 Pa.C.S.A.
§5524(a)(1). Here, as discussed by the plaintiff, the defendants’ brief contains
an apparent error, as §5524 does not provide for a four-year statute of
limitations, but provides for a two-year statute of limitations, and does not
contain a subsection (a)(1) as cited by the defendants. Although this was
pointed out in the plaintiff’s brief in opposition to the defendants’ motion to
dismiss, the defendants have not filed a reply brief to correct or clarify their
argument. The court will not speculate as to the basis of the defendants’
motion to dismiss. Instead, the motion will be denied on this basis.
The defendants next argue that all counts of the amended complaint
must be dismissed as to Mr. Bates. The defendants argue here that Mr. Bates
was not a party to the Franklin Note. For purposes the instant action, this is
of no consequence, as the plaintiff has not brought a claim against Mr. Bates
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related to the Franklin Note. Instead, the plaintiff’s claim against Mr. Bates is
for reformation of the Franklin Mortgage to which Mr. Bates is a party. This is
demonstrated by a review of the Franklin Mortgage attached to the plaintiff’s
amended complaint which reflects that he is listed as a “Borrower” in the
Franklin Mortgage; he initialed each of the first fourteen pages of the Franklin
Mortgage; and he signed the final page of the Franklin Mortgage on a line
designated for a “Borrower” and directly underneath a pre-printed statement
that provides, “BY SIGNING BELOW, Borrower accepts and agrees to the
terms and covenants contained in this Security Instrument and in any Rider
executed by Borrower and recorded with it.”
Defendants claim that the instant action should be also dismissed with
respect to Mr. Bates because he is not an owner of the Residential Property.
Again, the plaintiff is seeking reformation of the Franklin Mortgage. Mr. Bates
is an owner of the Vacant Property which is currently encumbered by the
Franklin Mortgage. As such, Mr. Bates is a proper party for purposes of the
plaintiff’s claim to reform the Franklin Mortgage to encumber the Residential
Property.
Finally, as to Mr. Bates, the defendants argue that the plaintiff’s claims
are improper because he obtained a discharge of debts in a Chapter 7
bankruptcy proceeding. Because the plaintiff is not attempting to collect a
debt from Mr. Bates, but is only seeking reformation of the Franklin Mortgage
to which Mr. Bates is a party, Mr. Bates’s bankruptcy action is irrelevant for
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purposes of the instant action against him.
For all of the foregoing reasons, the defendants’ motion to dismiss the
plaintiff’s amended complaint against Mr. Bates will be denied.
Next, the defendants argue that the plaintiff’s amended complaint
should be dismissed with respect to Bates/Jones because the plaintiff has
failed to sufficiently allege a claim for breach of contract as it has not pleaded
facts to show that a contract was formed or that it sustained any damages. To
the contrary, the allegations of the plaintiff’s amended complaint, as set forth
above, have sufficiently set forth a description of the Franklin Note’s terms to
demonstrate that the Franklin Note constituted a valid contract. Further, the
amended complaint sufficiently alleges damages in the amount of
$164,004.78, based upon Bates/Jones’s failure to make required monthly
payments, as well as related interest, costs and expenses. The defendants’
motion to dismiss will therefore be denied on this basis as well.
Similarly, the defendants’ argue that the plaintiff’s claims for reformation
by mutual mistake and reformation by unilateral mistake against Bates/Jones
should be dismissed due to the plaintiff’s failure to allege sufficient facts to
support the formation of a contract. As the court has found that the plaintiff
has properly set forth allegations related to the formation of a contract, this
portion of the defendants’ motion to dismiss will be denied as well.
Finally, the defendants argue that the plaintiff cannot sustain a claim for
fraud in the inducement. Upon review of the amended complaint, the plaintiff
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has not alleged a claim for fraud in the inducement. Therefore, the
defendants’ motion to dismiss will also be denied in this respect.
On the basis of the foregoing, an appropriate order shall issue.

s/ Malachy E. Mannion
MALACHY E. MANNION
United States District Judge
Date: March 28, 2014
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