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dismissing motion to strike portions of the defendant's motion to dismiss because motions to dismiss cannot be struck pursuant to Rule 12(f)
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10 Civ. 6215 (RJH)(THK)
05-18-2011
DENNIS J. HUELBIG, JR., Plaintiff, v. AURORA LOAN SERVICES, LLC, FIRST MAGNUS FINANCIAL, CITIMORTGAGE and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendants.
ORDER & REPORT AND RECOMMENDATION
(Pro Se) TO: HON. RICHARD J. HOLWELL, UNITED STATES DISTRICT JUDGE.
FROM: THEODORE H. KATZ, UNITED STATES MAGISTRATE JUDGE.
This case has been referred to this Court for Reports and Recommendations on dispositive motions, pursuant to 28 U.S.C. §§ 636(b)(1)(B) and (C). Presently before the Court in this regard are two motions to dismiss the Amended Complaint brought by Defendant CitiMortgage, Inc. ("CitiMortgage") and by Defendants Aurora Loan Services LLC ("Aurora") and Mortgage Electronic Registration System, Inc., ("MERS" and, collectively, Defendants").
One of the named Defendants, First Magnus Financial Corporation ("First Magnus"), filed a voluntary bankruptcy petition under Chapter 11 on August 21, 2007. See In re First Magnus Financial Corp., 390 B.R. 667 (Bkrtcy. D. Ariz. 2008).
This action was also referred to this Court for general pretrial supervision, pursuant to 28 U.S.C. § 636(b)(1)(A). Presently before the Court in this regard is Plaintiff Dennis J. Huelbig, Jr.'s ("Plaintiff") motion for leave to further amend the Complaint, which Defendants oppose. Plaintiff, who is proceeding pro se, has also filed a motion to strike Defendants' oppositions to his motion to further amend the Complaint, as well as a motion for a more definite statement as to what, if any, admissions, denials, and defenses are included in Defendants' motions to dismiss.
For the reasons stated below, Plaintiff's motions are denied. Further, the Court recommends that Defendants' motions to dismiss the Amended Complaint be granted.
BACKGROUND
A. Factual Background
Each of Plaintiff's claims against Defendants stem from loans in the original principal amounts of $119,200.00 and $29,800.00, respectively, extended to Plaintiff by First Magnus. (See Affirmation of William C. Sandelands, dated Jan. 6, 2011 ("Sandelands Aff."), ¶ 3.) Specifically, on June 26, 2006, as security for the First Loan, Plaintiff granted a mortgage to MERS, as nominee for First Magnus, on real property located at 148 Barry Avenue, Mascotte, Florida ("First Mortgage"). (See id. ¶ 4.) That same day, as security for the Second Loan, Plaintiff granted a second mortgage to MERS, as nominee for First Magnus, on the same property ("Second Mortgage"). (See id. ¶ 5.) The First Mortgage was transferred to Aurora. (See id. ¶ 7.) Plaintiff soon defaulted on his mortgage payments, and Aurora commenced foreclosure proceedings on or about April 3, 2007. (See id.) The Circuit Court of Lake County, Florida entered a final judgment of foreclosure on June 16, 2010. (See id. ¶¶ 8-11.) Plaintiff filed an appeal in this foreclosure action, which is pending.
B. Procedural Background
Plaintiff filed the Complaint on or about August 18, 2010. On October 28, 2010, Defendants filed motions to dismiss Plaintiff's Complaint for failure to state a claim upon which relief can be granted or, alternatively, for summary judgment. Plaintiff opposed the motions and, on or about November 12, 2010, filed an Amended Complaint as a matter of course under Federal Rule of Civil Procedure 15(a). Defendants again moved to dismiss all of the causes of action alleged against them in the Amended Complaint. Plaintiff opposed these motions, and Defendants replied on February 24, 2011. On March 5, 2011, while the motions to dismiss were pending, Plaintiff filed a motion for leave to further amend the Complaint, which Defendants oppose. On March 25, 2011, Plaintiff filed a motion to strike Defendants' opposition to his motion for leave to further amend, as well as a motion for a more definite statement regarding certain aspects of Defendants' motions to dismiss.
DISCUSSION
I. Plaintiff's Motions to Strike and Motion for a More Definite Statement
A. Plaintiff's Motion to Strike
Plaintiff filed a motion to strike in connection with Defendants' opposition to Plaintiff's motion for leave to file a Second Amended Complaint. (See Plaintiff's Motion to Strike Defendant's Memorandum in Support of Opposition for Leave to Amend, dated Mar. 25, 2011 ("Motion to Strike").)
Plaintiff's Motion to Strike is improper because Federal Rule of Civil Procedure 12(f) allows a court to strike pleadings only. See Fed.R.Civ.P. 12(f) ("The court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter."); see also Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Hicks, Muse, Tate, No. 02 Civ. 1334 (SAS), 2002 WL 1482625, at *6 (S.D.N.Y. July 10, 2002) (same). Motions, declarations, and affidavits are not pleadings. See Fed.R.Civ.P. 7(a) (defining pleadings as the complaint, answer, answer to cross-claims and counterclaims, third-party complaint, answer to third-party complaint, and replies when ordered by the Court).
The Court, therefore, denies Plaintiff's Motion to Strike because it does not comport with the restrictions of Rule 12(f). See, e.g., Pakter v. New York City Dept. of Educ., No. 08 Civ. 7673 (DAB), 2010 WL 1141128, at *4 (S.D.N.Y. Mar. 22, 2010) (denying plaintiff's motion to strike defendants' memorandum of law in support of its motion to dismiss because it is not a pleading as required under Rule 12(f)); Katz v. Mogus, 07 Civ. 8314 (PKC) (KNF), 2009 WL 3189342, at *5 (S.D.N.Y. Oct. 6, 2009) (denying defendant's motion to strike the plaintiff's submission filed in opposition to motion to dismiss because it is not a pleading and, thus, is not the proper subject of a Rule 12(f) motion); Granger v. Gill Abstract Corp., 566 F. Supp. 2d 323, 334-35 (S.D.N.Y. 2008) (denying all of the plaintiff's motions to strike because they did not comply with the restrictions of Rule 12(f)) (citing Sierra v. United States, No. 97 Civ. 9329 (RWS), 1998 WL 599715, at *9 (S.D.N.Y. Sept. 10, 1998) (denying plaintiff's motion to strike defendant's motion to dismiss because a motion is not a pleading)).
B. Plaintiff's Motion for a More Definite Statement
Plaintiff has also filed a motion for a more definite statement in connection with Defendants' motions to dismiss the Amended Complaint. In particular, Plaintiff argues that he is unable to respond to Defendants' motions to dismiss because their submissions "incorporate by reference a vast number of totally irrelevant admissions, denials, and defenses;" are "vague and ambiguous;" and assert claims that are "false" and designed to divert the Court from the facts in this case. (See Plaintiff's Motion for a More Definite Statement, dated Mar. 25, 2011, ¶¶ 1-2.) Plaintiff contends that his motion for a more definite statement arises under Federal Rules of Civil Procedure 10(b) and 12(e).
As an initial matter, Rule 10(b) states that claims or defenses must be set forth in numbered paragraphs in the pleadings. See Fed.R.Civ.P. 10(b). This rule is of no relevance here. Moreover, Federal Rule of Civil Procedure 12(e) provides that "a party may move for a more definite statement of a pleading to which a responsive pleading is allowed but which is so vague or ambiguous that the party cannot reasonably prepare a response." Fed.R.Civ.P. 12(e); see also Olsson v. Vertis Commc'ns, No. 09 Civ. 5428 (GBD), 2009 WL 5194979, at *1 (S.D.N.Y. Dec. 29, 2009) (same). As discussed, motions, declarations, and affidavits are not pleadings.
The Court, therefore, denies Plaintiff's Motion for a More Definite Statement because it is not directed at a pleading and, therefore, does not comport with the restrictions of Rule 12(e).
II. Plaintiff's Motion for Leave to Further Amend Complaint
Having amended the Complaint once, Plaintiff filed a motion for leave to further amend. (Plaintiff's Motion for Leave to Amend Complaint, dated Mar. 5, 2011.) Defendants oppose the motion.
A. Legal Standard
A motion for leave to amend the pleadings is evaluated under Federal Rule of Civil Procedure Rule 15(a), which provides that leave to amend "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). Leave to amend should be granted unless there is "any apparent or declared reason — such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of the amendment. . ." Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230 (1962); accord Holmes v. Grubman, 568 F.3d 329, 334-35 (2d Cir. 2009); Commander Oil Corp. v. Barlo Equip. Corp., 215 F.3d 321, 333 (2d Cir. 2000); Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993). The "grant or denial of an opportunity to amend is within the discretion of the District Court." Foman, 371 U.S. at 182, 83 S. Ct. at 230; accord Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330, 91 S. Ct. 795, 802 (1971).
Federal Rule of Civil Procedure 7(b), however, requires that motions "state with particularity the grounds therefor, and shall set forth the relief or order sought." Fed.R.Civ.P. 7(b). Courts in this jurisdiction have generally construed Rule 7(b) to require a plaintiff to file a copy of the proposed amended pleading in order to demonstrate that Rule 15(a) relief is appropriate. See, e.g., In re Crude Oil Commodity Litig., No. 06 Civ. 6677 (NRB), 2007 WL 2589482, at *4 (S.D.N.Y. Sept. 8, 2007) ("In the context of a motion to amend, Rule 7(b) . . . requires the movant to supply a copy of the proposed amendment."); Bankr. Trust of Gerard Sillam v. Refco Grp., LLC, No. 05 Civ. 10072 (GEL), 2006 WL 2129786, at *5 (S.D.N.Y. July 28, 2006) (denying motion to amend on the grounds that the plaintiffs' failure to provide a proposed amended complaint inhibited the Court's ability to evaluate the merits of plaintiffs' proposed contract claim, and demonstrated the futility of such a claim against defendants); Smith v. Planas, 151 F.R.D. 547, 550 (S.D.N.Y. 1993) ("In order to satisfy the prerequisite of particularity in a motion to amend, a complete copy of the proposed amended complaint must accompany the motion so that both the Court and opposing parties can understand the exact changes sought.").
At a minimum, Plaintiff must offer some factual detail or evidence as to what would change in the pleading. See, e.g., Horoshko v. Citibank, N.A., 373 F.3d 248, 249 (2d Cir. 2004) ("Because an amendment is not warranted '[a]bsent some indication as to what [the plaintiffs] might add to their complaint in order to make it viable,' the District Court was under no obligation to provide the [plaintiffs] with leave to amend their complaint.") (quoting Nat'l Union of Hosp. & Health Care Emp., RWDSU, AFL-CIO v. Carey, 557 F.2d 278, 282 (2d Cir. 1977)); see also Shields v. Citytrust Bancorp, 25 F.3d 1124, 1132 (2d Cir. 1994).
B. Application
Plaintiff has failed to submit a proposed Second Amended Complaint along with his motion for leave to further amend, which leaves the Court to speculate as to the nature of the contemplated amendments. See Zito v. Leasecomm Corp., No. 02 Civ. 8074 (GEL), 2004 WL 2211650, at *25 (S.D.N.Y. Sept. 30, 2004) ("Plaintiffs have failed to submit a copy of the proposed Second Amended Complaint, leaving the Court and the defendants to guess at the precise nature of the contemplated changes."). Moreover, Plaintiff's Affirmation does little to clarify the scope of the proposed amendments, and, instead, contains a collection of confusing and disorganized legal arguments and factual contentions that are directed more at Defendants' motions to dismiss. (See Plaintiff's Affidavit in Support of Motion for Leave to Amend Complaint, dated Mar. 5, 2011 ("Pl.'s Aff.").) Indeed, Plaintiff has not identified a single new fact that he intends to plead if granted further leave to amend. Rather, Plaintiff repeats the same unfounded theory upon which he has relied from the very start of this case — that his home loan secured by a mortgage is a securities transaction — and asserts the same confusing litany of conclusory statements and beliefs evidenced in his Amended Complaint. (See, e.g., Pl.'s Aff. ¶ 3 ("I believe the Defendants have committed an element of misconduct in the transaction of a certain mortgage and note.").) While Plaintiff contends, in his Affirmation, that he has "newly discovered evidence which will bolster the existing complaint" and that the "amended complaint will provide more specificity to the Defendants," Plaintiff provides no evidence or indication at all as to what this additional factual information might consist of. (Pl.'s Aff. ¶¶ 10, 13.)
In short, the Court concludes that Plaintiff has failed to meet the particularity requirement for relief under Rule 15(a). In any event, greater specificity would do little to render viable the clearly infirm claims in the existing Complaint. Accordingly, Plaintiff's motion for leave to further amend the Complaint is denied.
III. Defendants' Motions to Dismiss Amended Complaint
Defendant CitiMortgage and Defendants Aurora and MERS, separately, move to dismiss all eight claims asserted against them in the Amended Complaint. The Court will address each of these claims in turn.
A. Legal Standard
In deciding a motion to dismiss under Federal Rule of Civil Procedure Rule 12(b)(6), a court "must accept as true all of the factual allegations set out in [the] plaintiff's complaint, draw inferences from those allegations in the light most favorable to [the] plaintiff, and construe the complaint liberally." Roth v. Jennings, 489 F.3d 499, 510 (2d Cir. 2007) (quoting Gregory v. Daly, 243 F.3d 687, 691 (2d Cir. 2001)); see also Weixel v. Bd. of Educ., 287 F.3d 138, 145 (2d Cir. 2002).
The Supreme Court's decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007), adds a "plausibility standard," in evaluating the sufficiency of a complaint, which is guided by "[t]wo working principles." Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949 (2009); see also Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009); Bilello v. J.P. Morgan Chase Ret. Plan, No. 07 Civ. 7379 (DLC), 2009 WL 2461005, at *5-6 (S.D.N.Y. Aug. 12, 2009). "First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 129 S. Ct. at 1949; see also Harris, 372 F.3d at 72. "Second, only a complaint that states a plausible claim for relief survives a motion to dismiss," and "[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 129 S. Ct. at 1950.
For plaintiffs to survive a motion to dismiss, their complaint must "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. at 1949 (quoting Twombly, 550 U.S. at 570, 127 S. Ct. at 1973-74). "Facial plausibility" exists when a "plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556, 127 S. Ct. at 1965); see also Green v. Beer, No. 06 Civ. 4156 (KMW)(JCF), 2009 WL 3401256, at *3 (S.D.N.Y. Oct. 22, 2009).
B. Application
The Amended Complaint requests that the Court reinstate repealed provisions of the Glass-Steagall Act and alleges securities fraud under Section 6801 of the Gramm-Leach-Bliley Act, as well as under Section 17(a) of the 1933 Securities Act and Section 12(a) of the 1934 Securities Exchange Act. Plaintiff further alleges conspiracy and fraud in connection with the securitization of his home loans. The Court concludes that each of these claims, as pled, fails as a matter of law.
1. Glass Steagall Act
Plaintiff requests that the Court reinstate repealed provisions of the Glass-Steagall Act (see Plaintiff's Amended Complaint, dated Nov. 10, 2010 ("Am, Compl."), ¶¶ 59-62), which barred commercial banks from engaging in certain investment banking activities. See 12 U.S.C. § 377, et. seq. The Court, however, does not have the power to reinstate repealed provisions of the Glass-Steagall Act. Only Congress can enact laws.
Accordingly, Plaintiff's claim arising under the Glass-Steagall Act fails as a matter of law and should be dismissed.
2. Gramm-Leach-Bliley Act
Plaintiff contends that Defendants failed to adhere to the Safeguard Rule under the Gramm-Leach-Bliley Act ("GLBA"), which requires financial institutions to protect clients' nonpublic information. (See Am. Compl. ¶ 64.) In relevant part, the GLBA states that "each financial institution has an affirmative and continuing obligation to respect the privacy of its customers and to protect the security and confidentiality of those customers' nonpublic personal information." 15 U.S.C. § 6801(a).
There is no private right of action, however, under the GLBA for an alleged violation of its privacy provisions. See, e.g., Rezende v. Citigroup Global Mkts, Inc., No. 09 Civ. 9392 (HB), 2010 WL 4739952, at * 5 (S.D.N.Y. Nov. 18, 2010) ("As courts in this district and elsewhere have recognized, the GLBA does not provide for a private right of action."); Menton v. Experian Corp., No. 02 Civ. 4687 (NRB), 2003 WL 21692820, at *3 (S.D.N.Y. July 21, 2003) ("[T]he GLBA does not provide for a private right of action[.]" ); see also Dunmire v. Morgan Stanley DW, Inc., 475 F.3d 956, 960 (8th Cir. 2007) (collecting cases). Plaintiff, therefore, lacks standing to pursue this claim.
Accordingly, Plaintiff's claim under the GLBA should be dismissed.
3. Violations of Federal Securities Law
Plaintiff alleges violations of the federal securities laws under Section 17(a) of the 1933 Securities Act and under Section 12(a) of the 1934 Securities Exchange Act. (See Am. Compl. ¶¶ 69-74, 81-86.) These claims fail because a note secured by a home mortgage does not qualify as a "security" under well-settled Supreme Court law.
Section 2(1) of the Securities Act of 1933 and Section 3(a)(10) of the Securities Exchange Act of 1934 define the term "security" to include "any note." See 15 U.S.C. § 77b(a)(1), 78c(a)(10). This broad definition has a purpose: Congress intended "to encompass virtually any instrument that might be sold as an investment." Reves v. Ernst & Young, 494 U.S. 56, 61, 110 S. Ct. 945, 949 (1990). Nonetheless, Congress did not "intend to provide a broad federal remedy for all fraud." Marine Bank v. Weaver, 455 U.S. 551, 556, 102 S. Ct. 1220, 1223 (1982). When determining whether a financial transaction satisfies the definition of a security, "form should be disregarded for substance and the emphasis should be on economic reality." Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S. Ct. 548, 553 (1967). This is because "Congress' purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called." Reves, 494 U.S. at 61, 110 S. Ct. at 949 (emphasis in original).
The Supreme Court has determined, however, that the term "any note" in the statutory definition does not, literally, mean any note, but, rather, "must be understood against the backdrop of what Congress was attempting to accomplish in enacting the Securities Acts." Reves, 494 U.S. at 63, 110 S. Ct. at 950. To determine whether a note qualifies as a security, the "family resemblance" test applies. Reves, 494 U.S. at 64-65, 110 S. Ct. at 951-52. Basically, if the note in question bears a "family resemblance" to notes that have been judicially recognized as not qualifying as securities, then the note is not a security. See id.; see also Chem. Bank v. Arthur Andersen & Co., 726 F.2d 930, 939 (2d Cir. 1984); Exch. Nat'l Bank of Chicago v. Touche Ross & Co., 544 F.2d 1126, 1137 (2d Cir. 1976).
Under this family resemblance test, the types of notes that are not securities include: "'the note delivered in consumer financing; the note secured by a mortgage on a home; the short-term note secured by a lien on a small business or some of its assets; the note evidencing a character loan to a bank customer; short-term notes secured by an assignment of accounts receivable; a note which simply formalizes an open-account debt incurred in the ordinary course of business; and notes evidencing loans by commercial banks for current operations.'" Reves, 494 U.S. at 65, 110 S. Ct. at 951 (emphasis added) (quoting Exchange Nat'l Bank of Chicago v. Touche Ross & Co., 544 F.2d 1126, 1138 (2d Cir. 1976)); accord Pollack v. Laidlaw Holdings, Inc., 27 F.3d 808, 812 (2d Cir. 1994); Intelligent Digital Sys., LLC v. Visual Mgmt. Sys. Inc., 683 F. Supp. 2d 278, 283-84 (E.D.N.Y. 2010).
Here, it is clear that Plaintiff is not a purchaser of a security as that term is defined under the federal securities laws. Plaintiff simply took out two loans, on or about June 26, 2006, that were secured by the First and Second Mortgages, respectively. While Plaintiff attempts to characterize these transactions as a sale of securities so as to fit within the protections of federal securities law, these transactions involve obvious examples of a type of note that has been expressly held not to qualify as a security under federal law — "a note secured by a mortgage on a home." Reves, 494 U.S. at 65, 110 S. Ct. at 951; see also Pollack, 27 F.3d at 812 (stating that the "traditional note secured by a home mortgage" is "exempt from regulation under the securities laws").
Alternatively, Plaintiff contends that Defendants violated Section 12(a) of the Securities Exchange Act by adding securities to his account "that he did not wish to own." (Am. Compl. ¶ 84.) Specifically, Plaintiff contends that "[o]n or about April 7, 2007, Aurora, First Magnus, Citi, and MERS sold to Plaintiff an undisclosed number of shares of stock in a Fidelity Investments for an unknown price." (Id. ¶ 41.) Plaintiff further claims that, at the same time, Defendants bought shares in a Fidelity account for him in 2006. (See id. ¶ 36.)
Under Section 12(a), "[a]ny person who . . . offers or sells a security [in violation of various provisions] . . . shall be liable . . . to the person purchasing such security from him." 15 U.S.C. § 771(a); accord Pub. Emps.' Ret. Sys. of Mississippi v. Merrill Lynch & Co. Inc., No. 08 Civ. 10841 (JSR), 2010 WL 4903619, at *3 (S.D.N.Y. Dec. 1, 2010). Thus, to prevail on a claim brought under Section 12(a), a plaintiff must, at the very least, establish that he, in fact, purchased a security from a defendant in the case.
Here, the Amended Complaint does not plausibly allege a securities transaction between Plaintiff and any one of the Defendants. While Plaintiff allegedly set up some sort of Fidelity account at approximately the same time as the origination of the loans, Plaintiff does not explain what securities were allegedly purchased, in what amount, or at what price, and from whom. Moreover, the claim that Aurora, First Magnus, CitiMortgage, and MERS all sold to Plaintiff an undisclosed number of shares of stock is not consistent with plausible fact as none of these Defendants are licensed securities broker/dealers. (See, e.g., Memorandum of Law in Support of Defendant CitiMortgage's Motion to Dismiss the Amended Complaint, dated Jan. 7, 2011, at 10.) In short, Plaintiff's vague and confusing allegations of a violation of Section 12(a) do not satisfy the Twombly/Iqbal plausibility standard.
Accordingly, for the reasons given, Plaintiff's federal securities law claims fail, as a matter of law, and should be dismissed.
4. Trust Indenture Act
Plaintiff contends that Defendants engaged in trading and selling his note, but neglected to offer him a trust indenture (see Am. Compl. ¶¶ 75-80), as required under the Trust Indenture Act of 1939. See 15 U.S.C. § 77aaa, et. seq.
The Trust Indenture Act regulates corporate debt securities offered for sale in interstate commerce, setting forth the responsibilities and potential liabilities of trustees of indentures. Under the Trust Indenture Act, bonds, notes, debentures, and other similar securities, unless exempted by the Act, must be registered under the 1933 Securities Exchange Act and be issued under an indenture which meets the requirements of the Trust Indenture Act, and has been qualified with the Securities and Exchange Commission. The term "indenture" is defined as "any mortgage, deed of trust, trust or other indenture or similar instrument or agreement (including any supplements or amendments to any of the foregoing), under which securities are outstanding or are to be issued, whether or not any property, real or personal, is, or is to be, pledged, mortgaged, assigned or conveyed thereunder." 15 U.S.C.A. § 77ccc(7).
Plaintiff does not have standing to sue under the Trust Indenture Act. Plaintiff took out a loan secured by a mortgage. He did not purchase, acquire, or otherwise invest in a corporate debt security, registered under the 1933 Act, and issued under an indenture meeting the requirements of the Trust Indenture Act. The Trust Indenture Act has no bearing whatsoever on Plaintiff's note and home mortgage, and Plaintiff — a borrower, not an investor — therefore lacks standing to pursue a claim under this Act. See, e.g., Bluebird Partners, L.P. v. First Fid. Bank, N.A. New Jersey, 85 F.3d 970, 973 (2d Cir. 1996) ("The Trust Indenture Act was enacted because previous abuses by indenture trustees had adversely affected the national public interest and the interest of investors in notes, bonds and debentures.") (emphasis added) (citations and internal quotation marks omitted).
Accordingly, Plaintiff's claim under the Trust Indenture Act fails as a matter of law and should be dismissed.
5. Civil Conspiracy
Plaintiff alleges that Defendants entered into an unlawful conspiracy under 18 U.S.C. § 371 (see Am. Compl. ¶¶ 87-90), which makes it unlawful for two or more persons to "conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose . . ." 18 U.S.C. § 371.
By its plain terms, the statute has no relevance to Plaintiff's claim as he has not alleged that Defendants conspired to defraud the United States. In any event, there is no private right to sue under 18 U.S.C. § 371, which is a criminal statute. See, e.g., Hom v. Brennan, 304 F. Supp. 2d 374, 382 (E.D.N.Y. 2004) (stating that there is no private right of action under 18 U.S.C. § 3 71); Greenblatt v. Richard Potasky Jewelers, No. 93 Civ. 3 652 (LMM), 1994 WL 9754, at *4 n.4 (S.D.N.Y. Jan. 13, 1994) ("Courts have consistently held that no private right of action exists pursuant to . . . 18 U.S.C. § 371[.]").
Accordingly, Plaintiff fails to state a cause of action upon which relief can be granted and his conspiracy claim should be dismissed.
6. Common Law Fraud
Plaintiff contends that he is entitled to rescind or cancel the First Mortgage on the basis of "fraud" and "false representations." (Am. Compl. ¶ 93.) Plaintiff's final cause of action is labeled "scienter." (See Am. Compl. ¶¶ 97-102.) While this is not a cognizable cause of action, the Court construes the claim to allege common law fraud. Nonetheless, Plaintiff fails to plead his fraud claims with the requisite specificity under Federal Rule of Civil Procedure 9(b).
Plaintiff also contends that the existence of "mutual mistake" and "impossibility of performance" serve as "appropriate" grounds for the "rescission or cancellation" of the First Mortgage. (Am. Compl. ¶ 93.) Plaintiff, however, does not allege a single fact regarding either a mutual mistake or manner in which performance under the loan contracts was impossible. These claims, therefore, must fail, as a matter of law, under Rule 9(b).
Plaintiff's "Scienter" claim includes a passing reference to the Federal Fair Debt Collection Practices Act ("FDCPA"). See 15 U.S.C. § 1692. Plaintiff fails to allege any facts relating to any debt collection activity by Defendants. Indeed, Plaintiff simply states that "Defendant's reckless actions and dilatory conduct also conflict with . . . Fair Debt Collection Practices." (Am. Compl. ¶ 103.) Obviously, this single statement, standing alone, does not satisfy the Twombly/Iqbal pleading standard. In any event, an FDCPA claim is subject to a one-year statute of limitations. See 15 U.S.C. § 1692k(d). The Amended Complaint does not allege any act of debt collection, and none within one year of the filing of this lawsuit.
Under New York law, a plaintiff alleging fraud must show, by clear and convincing evidence: "[1] a misrepresentation or a material omission of fact which was false and known to be false by defendant, [2] made for the purpose of inducing the other party to rely upon it, [3] justifiable reliance of the other party on the misrepresentation or material omission, and [4] injury." Premium Mortg. Corp. v. Equifax, Inc., 583 F.3d 103, 108 (2d Cir. 2009) (citation and internal quotation marks omitted); see also Gaidon v. Guardian Life Ins. Co., 94 N.Y.2d 330, 348-50, 704 N.Y.S.2d 177 (1999).
Federal Rule of Civil Procedure Rule 9(b) states that:
In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.Fed.R.Civ.P. 9(b). Under Rule 9(b), 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." Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004) (citation omitted); see also Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co., 375 F.3d 168, 187 (2d Cir. 2004) (quoting Harsco Corp. v. Segui, 91 F.3d 337, 347 (2d Cir. 1996)). The complaint must also allege facts that give rise to a "strong inference" of fraudulent intent. See Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006). Rule 9(b) pleadings cannot be based merely upon information and belief. See First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159, 179 (2d Cir. 2004); DiVittorio v. Equidyne Extractive Indust., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987); Segal v. Gordon, 467 F.2d 602, 608 (2d Cir. 1972).
Here, Plaintiff's contentions of fraud and false representation involve alleged improprieties occurring at the time when the First and Second Loans were securitized. Plaintiff, for example, contends that Defendants "at no time mentioned the truth as to the securitized transaction which took place on Wall Street" (Am. Compl. ¶ 98), and that Defendants "recklessly provided covenants in their 'Mortgages' which were designed to mislead consumers by stating the 'Note' may be sold to multiple lenders and services [sic] multiple times, however, failed to specifically state how many times [the note] was to be transferred and to whom; the contract in dispute lacks the specificity as to any association with Wall Street." (Id. ¶ 101.)
On its face, this does not state a plausible claim for fraud. The statement indicates that the First Loan Note could be "sold to multiple lenders and services multiple times." The failure to state the precise number of times or to whom the note would be sold could in no way be material to Plaintiff's decision to take his loan and, indeed, there is no allegation that he relied upon the statement or was somehow induced into entering into these loans based upon a fraudulent representation. In addition, Plaintiff's obligations under the note and mortgage do not in any way change as a result of secondary market transactions. See Cervantes v. Countrywide Home Loans, Inc., No. CV 09-517-PHX-JAT, 2009 WL 3157160, at *11 (D. Ariz. Sept. 24, 2009) (rejecting plaintiff's argument that the subsequent sale of a loan has any effect on the home mortgage borrower's obligations). Moreover, to the extent that the Complaint can be construed as contending that MERS did not have the legal authority to transfer the First Mortgage to Aurora, this argument has been consistently rejected by federal courts in the District of Arizona. See Kane v. Bosco, No. CV 10-1787-PHX-JAT, 2010 WL 4879177, at *12 (D. Ariz. Nov. 23, 2010) ("Plaintiffs have not directed the Court to any Arizona case that finds that MERS does not have capacity to assign deeds of trust, or that the MERS system is fraudulent."); see also Warren v. Sierra Pac. Mortg. Servs. Inc., No. CV-10-02095-PHX-NVW, 2011 WL 1526957, at *5 (D. Ariz. Apr. 22, 2011) (holding that plaintiffs did not provide any factual support for its contention that MERS was not authorized to transfer its beneficial interest in the deed of trust to CitiMortgage).
"When a note is executed in one state and payable in another, it is governed as to its nature, validity, interpretation and effect by the laws of the state where it is made payable." In re AppOnline.com, Inc., 321 B.R. 614, 621 (E.D.N.Y. 2003). Here, the First Loan Note states that Plaintiff was to make "monthly payments at First Magnus Financial Corporation, an Arizona corporation, 603 North Wilmot Road, Tucson, AZ 85711." (First Loan Note, attached at Ex. A to Sandelands Aff.)
In short, Plaintiff's conclusory allegations of fraud and false representation do not satisfy Rule 9(b)'s requirement that the circumstances constituting fraud be plead with particularity, and do not state a plausible claim of fraud. Accordingly, Plaintiff's fraud claims should be dismissed.
CONCLUSION
For the reasons set forth above, Plaintiff's Motion to Strike, Plaintiff's Motion for a More Definite Statement, and Plaintiff's Motion for Leave to Amend the Complaint are denied. The Court further recommends that Defendants' motions to dismiss Plaintiff's Amended Complaint be granted and that the Amended Complaint be dismissed with prejudice.
Pursuant to 28 U.S.C. § 636(b)(1)(C) and Rule 72 of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days from service of this Report to file written objections. See also Fed. R. Civ. P. 6(a) and (d). Such objections shall be filed with the Clerk of the Court, with extra copies delivered to the chambers of the Honorable Richard J. Holwell, United States District Judge, and to the chambers of the undersigned, Room 1660. Any requests for an extension of time for filing objections must be directed to Judge Holwell. Failure to file objections will result in a waiver of those objections for purposes of appeal. See Thomas v. Arn, 474 U.S. 140, 155, 106 S. Ct. 466, 475 (1985); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Small v. Sec'y of Health & Human Servs., 892 F.2d 15, 16 (2d Cir. 1989).
Respectfully Submitted,
/s/_________
THEODORE H. KATZ
UNITED STATES MAGISTRATE JUDGE Dated: May 18, 2011
New York, New York