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finding that, with regard to the mortgage loan transaction at issue, "[t]he `occurrence of a violation' refers to the date on which [p]laintiffs entered into the loan agreement, or when defendants extend the credit for the loan, whichever date is later"
Summary of this case from McAnaney v. Astoria Financial Corp.Opinion
04-CV-4755 (ILG).
March 29, 2005
Howard W. Goldson, Goldson, Nolan, Connolly, P.C., Melville, New York, Attorneys for Plaintiffs.
Richard F. Harrison, Phillips Nizer LLP, Garden City, New York, Attorneys for defendants Michael Ashley, Kenneth Golden, Consumer Home Mortgage, Inc., a predecessor to Ideal Mortgage Bankers, Ltd. d/b/a Lend America a/k/a U.S. Mortgage Corp. and Mortgage Concepts.
Brian S. Gitnik, Clausen Miller, PC, New York, New York, Attorneys for defendant Rajesh Maddiwar.
Kirk P. Tzanides, Coffinas Coffinas LLP, New York, New York, Attorneys for defendant Gary Lewis.
Evelyn H. Seeler, Diane M. Nardi, Buchanan Ingersoll P.C., New York, New York, Attorneys for defendant M T Mortgage Corp.
Gregory W. Carman, Jr., Farmingdale, New York, Attorneys for defendant U.S. Mortgage Corp.
Robert Mauer, Garden City, New York, Attorneys for defendant Charles Salva Appraisals and Charles Salva.
MEMORANDUM AND ORDER
INTRODUCTION
This case arises out of the purchase of a home and the mortgage financing of that purchase. Plaintiffs argue that numerous parties, including but not limited to, the broker and seller, the mortgage lender, the appraiser, several of their agents, and at least two attorneys, engaged in a predatory lending scheme to induce plaintiffs to finance the purchase at an inflated price which they could not afford. Plaintiffs filed this suit more than four years after the closing of the subject property under the Truth-in-Lending Act ("TILA"), 15 U.S.C. § 1601 et. seq., the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691 et. seq., the New York State Deceptive Practices Act, N.Y.G.B.L. § 349 ("Section 349"), the New York State Real Property Law, N.Y. Real. Prop. § 443, and have also asserted common law claims for conspiracy to defraud, fraudulent concealment (or misconduct), a generic claim for emotional injury and breach of fiduciary duty. Several defendants — Michael Ashley ("Ashley"), Kenneth Golden ("Golden"), Consumer Home Mortgage, Inc. ("CHM"), a predecessor to Ideal Mortgage Bankers, Ltd. d/b/a Lend America a/k/a U.S. Mortgage Corp. and Mortgage Concepts (collectively, "Lend America") and Raj Maddiwan ("Maddiwan") — move to dismiss the complaint, asserting, among other things, that the TILA and ECOA claims are time-barred, and that the Court should exercise its discretion and not assert supplemental jurisdiction over the state law claims. The moving defendants further argue that even if the court entertains the state law claims, they lack merit. In opposition, plaintiffs assert that their federal claims are timely under the fraudulent concealment doctrine. Moreover, they contend that their state law claims are properly pleaded to survive a motion to dismiss.
Defendants the Foreclosure Network of Metro New York Inc. d/b/a the Foreclosure Network (the "Foreclosure Network"), Gary Lewis ("Lewis"), M T Mortgage Corp. ("M T Mortgage"), Charles Salva Appraisals, Inc. and Charles Salva (collectively, "Charles Salva") have not submitted a motion to dismiss the complaint.
For the reasons that follow, the moving defendants' motion to dismiss the complaint is granted in part and denied in part.
BACKGROUND
The following factual allegations are derived from the complaint and are viewed in the light most favorable to plaintiffs. In July, 2000, Jasmine Goodman ("Goodman") responded to a sign advertising real property for sale located at 26 Rutland Road, Freeport, New York. (Compl. ¶¶ 20, 24). The sign stated that the realty could be purchased through the broker, the Foreclosure Network, for no money down and only $2,500.00 in closing costs. (Id. ¶¶ 20, 21). Goodman and her father subsequently visited a Foreclosure Network office to discuss the purchase of the subject property, and met with Lewis, who told them that he represented the broker, the Foreclosure Network. (Id. ¶¶ 24-26). Lewis confirmed what was stated on the sign located on the property. (Id. ¶ 30). After Goodman expressed interest in purchasing the property, Lewis told her to complete a mortgage application which he indicated would be used to determine whether she was "loan worthy" and financially responsible. (Id. ¶¶ 29, 32). Based on Goodman's completed mortgage application, Lewis told her that she was not qualified for the purchase. (Id. ¶ 33). Lewis asked Goodman if she knew anyone who would agree to be a co-signer with her on the mortgage. (Id. ¶ 34). Goodman provided Lewis with the names of, among others, Deborah Coveal ("Coveal"), Faith Goodman ("Faith Goodman") and Arvilla Green ("Green") (collectively, "plaintiffs"). (Id. ¶ 35). During Goodman's initial meeting with Lewis, he did not tell her that the Foreclosure Network was the owner of the property, what the purchase price was, or provide her with the written disclosures required by N.Y. Real. Prop. § 443. (Id. ¶¶ 27, 28, 30).Lewis subsequently requested plaintiffs to complete a mortgage application, without telling them that their financial information would determine their "loan worthiness, and without disclosing that the purchase price would be determined by the ability of the purchaser to borrow FHA mortgage funds rather than upon the fair market value of the property." (Compl. ¶ 37). Coveal's then-current income was $35,000 per year and she had no savings, Faith Goodman's then-current income was $24,000 per year and Green indicated that she would not contribute to the monthly payments. (Id. ¶ 40). Lewis processed plaintiffs' loan application through Lend America. (Id. ¶ 41). Based on their application, Lewis informed plaintiffs that they were approved to purchase the subject property and to finance certain promised and needed repairs through CHM. (Id. ¶ 38). Lewis told plaintiffs that he would oversee the repairs by hiring a contractor to perform the work. (Id. ¶ 39). At the time of his representations, Lewis and Lend America, among others, "knew that the promised repairs and renovations would either not be made or would be performed in a shoddy, substandard and incomplete manner so as to produce an excess of funds in the repair escrow which Lewis" and Lend America "intended to unlawfully and fraudulently retain." (Id.)
Plaintiffs claim that Lewis, CHM and Lend America engaged in a "predatory lending scheme" based on the following: (i) when the mortgage was negotiated, they knew or should have known that plaintiffs would be unable to make the monthly payments, which would result in foreclosure proceedings; (ii) they misrepresented the fact that plaintiffs would not be required to pay more than $2,500 prior to closing on the property; (iii) they acted as if they were brokers representing plaintiffs' interests, when, in fact, they were representing the seller's interests; (iv) they never informed plaintiffs that the Foreclosure Network was the owner of the property; (v) they promised that the property would be delivered in "as new" condition and would comply with all applicable housing laws and codes at the time of closing, even though they knew that would be untrue; and (vi) they would spend $20,000 to renovate the property before the closing, which they did not. (Compl. ¶ 44).
Coveal notified Lewis early on that plaintiffs would retain an attorney to represent them in the transaction. (Compl. ¶ 45). However, Lewis told plaintiffs that the seller would not proceed with the transaction unless they were represented by an attorney chosen by the seller. (Id. ¶ 46). Lewis instructed Coveal to meet with him and Raj Maddiwar, the attorney selected by the seller to represent plaintiffs. (Id. ¶ 47). That meeting took place in July 2000, at which time plaintiffs were first told the sales price of the property and the cost of the repairs. (Id. ¶¶ 47-49).
Maddiwar, acting at the behest of, among others, Lewis and Lend America, claimed to represent plaintiffs' interests even though he was representing those of the defendants. Maddiwar allegedly breached his fiduciary duty to plaintiffs by, among other things, never advising them to personally inspect the property or have an inspector do so, failing to counsel them about the risks associated with the transaction, never reviewing and analyzing whether they could afford to enter into the transaction, and accepting the inflated appraisal report which he knew or should have known was fraudulent. (Compl. ¶ 52). The closing took place on August 4, 2000, attended by, among others, plaintiffs, Maddiwar and Golden, who was the seller's attorney. (Id. ¶¶ 53-54).
Plaintiffs allege that Charles Salva entered into an agreement with the other defendants to submit an appraisal for the property well-above market value and at "an amount sufficient to procure an FHA mortgage in the amount of" the purchase price. (Compl. ¶ 59). The appraisal overlooked the purchase price for the property paid by the seller, the Foreclosure Network, only two months earlier at a price more than $100,000 less than plaintiffs agreed to pay, and which included the value of the repairs that were never made. (Id. ¶¶ 60-63). Plaintiffs assert that Charles Salva knew or should have known that defendants would use the appraisal to defraud them. (Id. ¶¶ 64-65).
At the closing, Lewis represented that the repairs to the property would not be completed for another two weeks. (Compl. ¶ 55). This representation was never obtained in writing by Maddiwar. (Id. ¶ 56). Lewis knew that certain of the improvements were never made to the property, and that the improvements that were made were merely cosmetic intended to prevent plaintiffs from discovering the defects. (Id. ¶¶ 57-58, 70-71). Lend America subsequently released the money held in escrow to ensure the completion of the repairs even though they were never completed. (Id. ¶¶ 74-78).
Golden took part in the transaction even though he knew that the Foreclosure Network purchased the property just two months earlier for half the price. (Compl. ¶ 66). Golden "while observing" Maddiwar's "malpractice, remained silent, thus facilitating the fraudulent scheme." (Id. ¶ 67).
Plaintiffs allege that Lend America assigned the mortgage to M T on the day of closing, when it knew or should have known of the defendants' predatory lending scheme. (Compl. ¶¶ 80-86).
The complaint was filed on November 3, 2004, and this motion followed.
DISCUSSION
I. MOTION TO DISMISS STANDARD
The standard governing a motion to dismiss is well-established. Federal Rule of Civil Procedure 12(b)(6) authorizes a party to move to dismiss a complaint where it "fail[s] . . . to state a claim upon which relief can be granted." In reviewing a motion to dismiss, the Court accepts the allegations in the complaint as true and draws all reasonable inferences in favor of the non-moving party. See Patel v. Searles, 305 F.3d 130, 134-35 (2d Cir. 2002), cert. denied, 538 U.S. 907 (2003). A motion to dismiss will only be granted if plaintiffs cannot prove any set of facts in support of their claim that would entitle them to relief. See Citibank, N.A. v. K-H Corp., 968 F.2d 1489, 1494 (2d Cir. 1992).
II. WHETHER THE TILA and ECOA CLAIMS ARE TIMELY
As a threshold matter, the defendants argue that plaintiffs' claims under TILA and ECOA are time-barred. The statute of limitations for a claim filed under TILA is one-year. See 15 U.S.C. § 1640(e) ("Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation."); Lewis v. Nissan N.A., Inc., 2004 WL 2093467, at *3 (S.D.N.Y. Sept. 17, 2004). The "occurrence of a violation" refers to the date on which Plaintiffs entered into the loan agreement, or when defendants extend the credit for the loan, whichever date is later. Boursiquot v. Citibank F.S.B., 323 F. Supp. 2d 350, 353 (D. Conn. 2004). A two-year statute of limitations governs ECOA claims. See 15 U.S.C. § 1691e(f) (no ECOA violation action "shall be brought later than two years from the date of the occurrence of the violation.");Jones v. Ford Motor Credit Co., 2002 WL 88431, at *5 (S.D.N.Y. Jan. 22, 2002). It is undisputed that the closing of the loan transaction in this case, and the extension of the mortgage on the property, took place on August 4, 2000, more than four years prior to the filing of the complaint. Therefore, unless the Court finds that the statute of limitations was equitably tolled, plaintiffs' claims under TILA and ECOA are untimely.
Equitable tolling may be applicable to TILA and ECOA claims "if there are allegations of concealment and fraud." McAnaney v. Astoria Financial Corp., 2005 WL 366980, at *8 (E.D.N.Y. Feb. 17, 2005). For the federal common-law doctrine of fraudulent concealment to apply, plaintiffs must show that: (1) defendants engaged in a course of conduct to conceal evidence of their alleged wrongdoing; and (2) plaintiffs failed to discover the facts giving rise to their claims despite their exercise of due diligence. See State of New York v. Hendrickson Bros., Inc., 840 F.2d 1065, 1083 (2d Cir.), cert. denied, 488 U.S. 848 (1988); City of Detroit v. Grinnell Corp., 495 F.2d 448, 460 (2d Cir. 1974), abrogated on different grounds by, Goldberger v. Integrated Resources, Inc., 204 F.3d 43 (2d Cir. 2000). Stated differently, equitable tolling is permitted "where the complainant has been induced or tricked by his adversary's misconduct into allowing the filing deadline to pass." Irwin v. Dep't of Veterans Affairs, 498 U.S. 89, 96 (1990) (footnote omitted). For example, in McAnaney, on a motion to dismiss, the court tolled the statute of limitations where the complaint alleged that the defendants "have engaged in fraudulent, misleading, and deceptive efforts to conceal the true nature of their conduct." Id. Tolling does not apply, however, simply because plaintiffs did not or could not have discovered the facts giving rise to their claims within the statute of limitations period. Boursiquot, 323 F. Supp. 2d at 354 ("Although the Second Circuit has yet to rule on the matter, the overwhelming authority from other jurisdictions suggests that the inability to discover a nondisclosure is not enough, by itself, to toll the statute") (citing cases).
In Boursiquot, the plaintiffs' claim that the statute of limitations should be equitably tolled was rejected because they "admitted at oral argument that the facts of th[e] case do not involve any fraudulent concealment on the part of Citibank." 323 F. Supp. 2d at 354 n. 1.
"Equitable tolling requires a party to pass with reasonable diligence through the period it seeks to have tolled." Johnson v. Nyack Hosp., 86 F.3d 8, 12 (2d Cir. 1996). This due diligence requirement prevents a party from intentionally burying his or her head in the sand. See Holmberg v. Armbrecht, 327 U.S. 392, 397 (1946) (fraudulent concealment tolls the statute of limitations only "where a plaintiff has been injured by fraud and remains in ignorance of it without any fault or want of diligence or care on his part") (citation and internal quotation omitted). As Judge Posner has noted, "[f]raudulent concealment in the law of limitations . . . denotes efforts by the defendant, above and beyond the wrongdoing upon which the plaintiff's claim is founded, to prevent, by fraud or deception, the plaintiff from suing in time." Shropshear v. Corp. Counsel of the City of Chicago, 275 F.3d 593, 595 (7th Cir. 2001). The active concealment of fraudulent conduct tolls the statute of limitations only until such time as a reasonable party relying on it actually knew, or should have known, of the unlawful conduct of the opposing party. See Atlantic City Electric Co. v. General Electric Co., 312 F.2d 236, 239 (2d Cir. 1962) (en banc), cert. denied, 373 U.S. 909 (1963); Dodds v. Cigna Secs., Inc., 12 F.3d 346, 350 (2d Cir. 1993), cert. denied, 511 U.S. 1019 (1994).
The Second Circuit has made clear that pursuant to Fed.R.Civ.P. 9(b), "notice pleading" of the elements necessary to invoke the fraudulent concealment doctrine is insufficient to withstand a motion to dismiss. See Armstrong v. McAlpin, 699 F.2d 79, 90 (2d Cir. 1983). Fed.R.Civ.P. 9(b) requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." See also Helprin v. Harcourt, Inc., 277 F. Supp. 2d 327, 337-38 (S.D.N.Y. 2003) (same) (citing Moll v. U.S. Life Title Ins. Co. of N.Y., 700 F. Supp. 1284, 1289 (S.D.N.Y. 1988) ("Fraudulent concealment claims come within the ambit of Rule 9(b)")). "The burden rests squarely on the party pleading fraudulent concealment, and courts require particularity in pleading fraudulent concealment." Arden Architectural Specialties, Inc. v. Washington Mills Electro Minerals Corp., 2000 WL 33200925, at *4 (W.D.N.Y. Oct. 3, 2000); City of Detroit, 495 F.2d at 461. The central issue is thus whether plaintiffs have met their pleading burden.
A. Did Plaintiffs Exercise Due Diligence?
Even assuming that their allegations satisfy the first element of the fraudulent concealment doctrine, plaintiffs have failed to plead any facts regarding their diligence in discovering their causes of action under TILA and ECOA. Plaintiffs fail to satisfy their pleading burden to allege "efforts by the defendant[s], above and beyond the wrongdoing upon which plaintiffs' claim is founded, to prevent, by fraud or deception, the plaintiff[s] from suing in time." Shropshear, 275 F.3d at 595; see also Cohen v. Flushing Hosp. and Med. Ctr., 68 F.3d 64, 69 (2d Cir. 1995) ("Diligence proves to be a missing ingredient in this case, as there is no indication that [the plaintiff] made any effort to determine the Union's stance on his termination"); Nelson v. Stahl, 173 F. Supp. 2d 153, 166 (S.D.N.Y. 2001) (recognizing that a motion to dismiss on the basis of Plaintiffs' failure to engage in due diligence can be granted where the "undisputed facts" show a lack of reasonable diligence).
"In cases involving TILA [and ECOA], the courts have held uniformly that fraudulent conduct beyond the nondisclosure itself is necessary to equitably toll the running of the statute of limitations." McAnaney, 2005 WL 366980, at *5 (citations omitted).
One court has observed, "[t]he exercise of reasonable diligence is determined by examining the nature of the misleading statements alleged, the opportunity to discover the misleading nature of the statements, and the subsequent actions of the parties." Kennedy v. Josephthal Co., 814 F.2d 798, 802 (1st Cir. 1987). Even crediting plaintiffs' allegations in the complaint as the Court must do, there is no factual support for the proposition that plaintiffs' continuing ignorance of the alleged unlawful conduct was the result of a lack of diligence. This is true for the material allegations in the complaint.
First, plaintiffs allege that they were never told who the owner of the property was. (Compl. ¶ 27). However, at the closing, that information was available to plaintiffs, assuming that they somehow could not have learned it earlier. The fact that plaintiffs were unsophisticated, first-time homeowners should not have prevented them from asking Lewis or any of the other defendants with whom they interacted, who the seller of the property was. Second, defendants allegedly withheld the purchase price of the property from plaintiffs. (Compl. ¶ 31). Plaintiffs certainly should have been able to learn the purchase price of the property by asking Lewis, and in any event, they would have learned that price no later than the closing. The fact that no one told them initially what the purchase price of the property was should have alerted plaintiffs to a possible problem with the transaction.
Third, regarding the repairs that were never made, or were made "in a shoddy, substandard, and incomplete manner," plaintiffs had the opportunity to observe the condition of the repairs no later than when they obtained possession of the property shortly after the closing. (Compl. ¶ 39). That plaintiffs never saw the inside of the home prior to closing, and did not see the repairs to the home that were supposed to be part of the transaction, should have raised suspicions that the transaction was not what defendants represented it to be. Fourth, that defendants falsely represented that plaintiffs had sufficient assets to make the monthly payments on the house, was brought to their attention at some point well before foreclosure proceedings were instituted in September, 2002. (Compl. ¶ 44(f)).
Fifth, the inflated price of the property set forth in the appraisal — the gravamen of the complaint — could have been ascertained by plaintiffs if they had, for example, asked Lewis, Golden or Maddiwar who the seller was, and when, and at what price, the seller had purchased the property. (Compl. ¶ 62). This was information about which plaintiffs allege the moving defendants were knowledgeable. See, e.g., Campbell v. Chandler Assocs., Inc., 1997 WL 151889, at *2 (W.D.N.Y. Mar. 28, 1997) (dismissing TILA claim and refusing to apply fraudulent concealment doctrine where plaintiff "makes no showing of due diligence").
In short, plaintiffs do not allege in the complaint that they made any inquiries as to wrongdoing by defendants after their suspicions about the purported unlawful conduct were or should have been aroused. See Dayco Corp. v. Goodyear Tire Rubber Co., 523 F.2d 389, 394 (6th Cir. 1975) ("Any fact that should excite [the plaintiff's] suspicion is the same as actual knowledge of his entire claim."). Against this background, the Court finds that plaintiffs have not pleaded any facts which would tend to show that the fraudulent concealment occurred notwithstanding their due diligence. See Moll, 700 F. Supp. at 1293 ("A party seeking to avoid the bar of the statute [of limitations] must aver and show that he used due diligence to detect it. . . .") (construing "due diligence" in the context of equitable tolling and quoting Wood v. Carpenter, 101 U.S. (11 Otto) 135, 143 (1879)). This is not a case, therefore, where the plaintiffs were "prevented in some extraordinary way from exercising their rights," for example where they "could show that it would have been impossible for a reasonably prudent person to learn" about their causes of action.Miller v. International Telephone Telegraph Corp., 755 F.2d 20, 24 (2d Cir. 1985), cert. denied, 474 U.S. 851 (1985).
B. Even Assuming Plaintiffs Exercised Due Diligence, Did They Act Reasonably and Timely in Pursuing Their Federal Claims When They Became Aware of Them?
The facts reveal that plaintiffs may not have acted quickly after learning about defendants' alleged unlawful conduct, a necessary prerequisite to the application of the fraudulent concealment doctrine. See Cerbone v. International Ladies' Garment Workers' Union, 768 F.2d 45, 48 (2d Cir. 1985) ("Under this doctrine [of equitable tolling], the statute does not begin to run until the plaintiff either acquires actual knowledge of the facts that comprise his cause of action or should have acquired such knowledge through the exercise of reasonable diligence. . . . The doctrine has been applied . . . where the facts show that the defendant engaged in conduct, often itself fraudulent, that concealed from the plaintiff the existence of the cause of action") (internal quotation marks and citation omitted). Drawing all inferences in favor of plaintiffs, the complaint does not indicate when they learned of the defendants' alleged unlawful conduct.
The very same plaintiffs, in a sworn pleading filed in a New York state court, revealed their knowledge of the underlying events giving rise to this case as far back as 2002. On September 26, 2002, M T Mortgage filed a lawsuit against plaintiffs seeking foreclosure of the property (the "Foreclosure Proceeding") based on their failure to make the mortgage payments. The Foreclosure Proceeding was captioned M T Mortgage Corporation v. Arvilla Green, Deborah Coveal a/k/a Debra Coveal, Faith Goodman, People of the State of New York, "John Does" and "Jane Does," said names being fictitious, parties intended being possible tenants or occupants of premises, and corporations, other entities or persons who claim, or may claim, a lien against the premises, bearing index number 15763/02 (Sup.Ct. Nassau Co.). In that case, plaintiffs submitted a verified amended answer. That pleading, dated December 17, 2002, which also asserted counterclaims against M T Mortgage, alleged the very same, or substantially similar, factual allegations which are set forth in the complaint in this case. (Verified Answer, dated December 17, 2002, ¶¶ 23-40).
In considering defendants' motion to dismiss, this Court may rely upon public documents of which plaintiffs had notice that are integral to Plaintiffs' claim. See, e.g., Cortec Indus. v. SUM Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991),cert. denied, 503 U.S. 960 (1992).
Given the one-year statute of limitations applicable to TILA actions, that claim is time-barred even if the fraudulent concealment doctrine applied because plaintiffs filed the complaint well after one year following the time the Foreclosure Proceeding makes clear that they became aware of their federal claim. The TILA claim is therefore dismissed with prejudice.
Plaintiffs assert that the ECOA claim is timely based on an unsworn statement in their legal memorandum that they only became aware of that claim after meeting with their lawyers in response to being served with the complaint in the Foreclosure Proceeding. (Pls. Opp. at 16). Plaintiffs allege that their lawyers' investigation of the facts giving rise to their cross claims filed in the Foreclosure Proceeding was not completed until November 27, 2002. (Id.) Plaintiffs' argument fails because these allegations are not set forth in the complaint, but only in a legal memorandum, and therefore cannot be considered by the Court. See Taylor v. Vermont Dep't of Educ., 313 F.3d 768, 776 (2d Cir. 2002) (on a motion to dismiss, the Court is "generally limited to the facts presented within the four corners of the complaint"); Aniero Concrete Co., Inc., 2000 WL 863208, at *31 (S.D.N.Y. June 27, 2000) (excluding new facts in opposition brief as extra-pleading matters on motion to dismiss, and limiting consideration of the sufficiency of claim to the "four corners of the pleading") (citing Hayden v. County of Nassau, 180 F.3d 42, 54 (2d Cir. 1999)).
At oral argument, and consistent with the statements in their opposition papers, plaintiffs argued that they did not become aware of the ECOA claims until November 10, 2002, when their counsel read a newspaper article about other similar lawsuits that had been filed in this Court by African-American home buyers who were allegedly the subject of a similar predatory lending scheme involving many of the same defendants. If these allegations are true, and plaintiffs can assert that they acted with reasonable diligence in discovering the alleged wrongdoing, it may be appropriate for the Court to invoke the fraudulent concealment doctrine to the ECOA claim. Accordingly, the Court dismisses the ECOA claim without prejudice and grants plaintiffs leave to file an amended complaint alleging facts sufficient to demonstrate that the statute of limitations for the ECOA claim should be tolled until on or after November 3, 2002, two or less years prior to the time they filed the complaint in this action.
III. STATE LAW CLAIMS
Having dismissed the ECOA claim without prejudice, with leave granted to plaintiffs to file an amended complaint, and in light of the Court's exercise of jurisdiction over two related cases that are in the middle of discovery involving many of the same defendants and claims, see Vaughn v. Consumer Home Mortgage, Inc., 01 CV 7937, 2003 WL 21241669 (E.D.N.Y. Mar. 23, 2003), and Banks v. Consumer Home Mortgage, Inc., 01 CV 8508, 2003 WL 21251584 (E.D.N.Y. Mar. 28, 2003), the Court retains supplemental jurisdiction over plaintiffs' state law claims pursuant to 28 U.S.C. § 1367(c). See United Mine Workers v. Gibbs, 383 U.S. 715, 726-27 (1966); Itar-Tass Russian News Agency v. Russian Kurier, Inc., 140 F.3d 442, 446 (2d Cir. 1998) (a court's discretion to decline supplemental jurisdiction must be founded on one of the categories in subsection 1367(c)). The moving defendants seek dismissal of these claims, and the Court addresses their arguments below.
28 U.S.C. § 1367(c)(3) states that the "district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if . . . the district court has dismissed all claims over which it has original jurisdiction."
A. Conspiracy To Commit Fraud
The moving defendants argue that plaintiffs' first cause of action for conspiracy to commit fraud does not state a claim for relief because New York does not recognize such a cause of action. See Snyder v. Puente de Brooklyn Realty Corp., 297 A.D.2d 432, 435, 746 N.Y.S.2d 517, 521 (3rd Dep't 2002) (claim for "conspiracy to commit fraud" not recognized under New York law), leave to appeal denied, 99 N.Y.2d 506, 785 N.E.2d 734, 755 N.Y.S.2d 712 (2003). However, a claim of conspiracy is recognized where the underlying allegations "connect the actions of separate defendants with an otherwise actionable tort." Id. (citing Alexander Alexander of N.Y. v. Fritzen, 68 N.Y.2d 968, 969, 510 N.Y.S.2d 546, 503 N.E.2d 102 (1986)). In this case, plaintiffs assert that they have adequately pleaded the underlying tort of fraud and have connected the moving defendants to the fraud claim. To plead fraud sufficiently, a plaintiff must allege: (1) a material misrepresentation or omission of fact; (2) made with knowledge of its falsity; (3) with an intent to defraud; (4) reasonable reliance on the part of the plaintiff; and (5) such reliance causes damage to the plaintiff. See Schlaifer Nance Co. v. Estate of Andy Warhol, 119 F.3d 91, 98 (2d Cir. 1997).
Although the moving defendants argue that the fraud claims are not pleaded with sufficient particularity against them, the Court disagrees. As in Vaughn and Banks, the Court finds that the complaint contains specific allegations of fraud directed against the defendants. Thus, the only question is whether the complaint contains proof of an agreement to engage in a common scheme or plan to defraud plaintiffs. See AM Cosmetics, Inc. v. Solomon, 67 F. Supp. 2d 312, 321 (S.D.N.Y. 1999) ("Plaintiffs may plead the existence of a conspiracy in order to connect the actions of the individual Defendants with an actionable, underlying tort, and establish that those actions were part of a common scheme."); Elghanian v. Harvey, 249 A.D.2d 206, 207, 671 N.Y.S.2d 266, 266 (1st Dep't 1998) (same).
Viewing the facts in the light most favorable to the plaintiffs, an agreement to engage in a fraudulent scheme is pleaded in the complaint. In particular, plaintiffs allege that "Lewis acted as part of a predatory lending scheme in which all of the other defendants participated." (Compl. ¶ 44). That scheme included, as discussed above, making material misrepresentations about the repairs to the property, and misrepresenting the value of the property. From these facts, it may be inferred that the moving defendants, along with the other defendants, engaged in a common scheme or plan to defraud plaintiffs of their interest in the property. Each of the moving defendants is directly connected to the fraudulent representations of the non-moving defendants. See Odyssey Re (London) Ltd. v. Stirling Cooke Brown Holdings, Ltd., 85 F. Supp. 2d 282, 299 (S.D.N.Y. 2000) (suggesting that where plaintiff connects a co-defendant to the fraudulent misrepresentations, a cause of action for conspiracy to defraud may lie), aff'd, 2 Fed. Appx. 109 (2d Cir. 2001) (unpublished opinion); Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 26 n. 4 (2d Cir. 1990) (holding that although pleading of conspiracy to defraud is measured under the more liberal standards of Rule 8(a), the complaint "must allege some factual basis for a finding of a conscious agreement among the defendants"). Therefore, the moving defendants' motion to dismiss the conspiracy to defraud cause of action is denied.
B. The Fraud and Section 349 Claims
As noted above, the moving defendants seek dismissal of the fraud claim because it is not pleaded with particularity and there are no allegations of fraud directed against them. (Defs. Mem. at 18-21). However, this argument was rejected by this Court in Banks, with reasoning that is directly applicable here:
the failure to plead with particularity specific fraudulent statements from or actions taken by the [the individual defendants] is not fatal to the claims. In this case, the complaint makes clear that the liability of the Ashleys is predicated upon directing or exerting substantial control over CHM [and other defendants], and the employees of those companies, as well as acting with the other defendants to carry out the alleged fraud. The facts alleged demonstrate strong circumstantial evidence of an intent to defraud, since they allege knowledge of the misrepresentations made and facts of both motive (significant and unusual financial gain) and opportunity (created by the conspiracy's efforts to steer plaintiffs to other members of the conspiracy).Banks, 2003 WL 21251584, at *7.
Similarly, the moving defendants argue that the Section 349 claim is deficient because plaintiffs "have not alleged any act, practice, or conduct against the moving [d]efendants that was deceptive." (Defs. Mem. at 21). This argument was also rejected by this Court in Banks, with reasoning that is apposite here.Banks, 2003 WL 21251584, at *8 (the individual defendants' "role in concealing the relationship between" two of the defendants "in order to close the deal would qualify as an act that is likely to mislead a reasonable consumer acting reasonably under the circumstances and therefore states a claim under Section 349") (internal quotations and citation omitted). Accordingly, the moving defendants' motion to dismiss the fraud and Section 349 claims is denied.
C. Ashley's Liability as a Principal of Lend America
Ashley moves to dismiss the complaint because the only allegations in the complaint directed against him state that he is a "principal" of Lend America. Therefore, Ashley contends that he cannot be held liable because he is not alleged to have engaged in any wrongdoing. Ashley's argument is unavailing because the complaint states that Ashley, either directly or indirectly, "exercised control over the Lend America defendants and, through defendant Gary Lewis, also directly or indirectly exercised control over the" Foreclosure Network. (Compl. ¶ 10). On similar facts, the court rejected a motion brought by Ashley in Vaughn which the Court finds persuasive here. See Vaughn, 2003 WL 21241669, at *4-5 ("the highly specific pleading of the fraudulent scheme and the acts taken in furtherance of it, combined with allegations of knowledge or control, suffice to put," among others, Ashley "on notice of what they are accused, including the inference that as an officer of the defendant entity, Ashley had the motive and opportunity to commit fraud"). Therefore, Ashley's motion to dismiss the complaint is denied.
D. Claims Against Maddiwar
Maddiwar moves to dismiss the claims against him based on the statute of limitations. He asserts that the gravamen of the complaint as asserted against him sounds in legal malpractice. In New York, the statute of limitations for all legal malpractice actions is three years. See N.Y.C.P.L.R. § 214(6); Svenska Finans Int'l BV v. Scolaro, Shulman, Cohen, Lawler Burstein, P.C., 37 F. Supp. 2d 178, 183 (S.D.N.Y. 1999) (same). Generally, a claim for attorney malpractice accrues when the malpractice occurs, in this case on the date of the closing in August, 2000.See generally Brooks v. Bates, 1994 WL 121851, at *6 (S.D.N.Y. Apr. 7, 1994). Therefore, to the extent that the complaint asserts a claim against Maddiwar for legal malpractice, that claim is dismissed. That requires the dismissal of the breach of fiduciary duty claim against Maddiwar as well because it is, in essence, a cause of action for legal malpractice. See Mecca v. Shang, 258 A.D.2d 569, 570, 685 N.Y.S.2d 458 (2d Dep't 1999) (dismissing, among others, a claim for breach of fiduciary duty since it "arise[s] from the same facts as [plaintiff's] legal malpractice claim and do[es] not allege distinct damages").
Nonetheless, when viewed in the light most favorable to plaintiffs, the complaint alleges a claim of fraud against Maddiwar based on an "aiding and abetting" theory that is distinct from a legal malpractice claim. National Westminster Bank USA v. Weksel, 124 A.D.2d 144, 149, 511 N.Y.S.2d 626, 630 (1st Dep't) (aiding and abetting may be established by knowledge of the fraud and intent to advance the fraud's commission),appeal denied, 70 N.Y.2d 604, 519 N.Y.S.2d 1027, 513 N.E.2d 1307 (1987). The statute of limitations for a claim of "aiding and abetting" fraud, like a fraud claim itself, is generally six years. Cromer Finance Ltd. v. Berger, 137 F. Supp. 2d 452, 482-83 (S.D.N.Y. 2001). In Vaughn, this Court denied a motion to dismiss such a claim brought against two attorneys alleged to have participated in the fraudulent scheme.See Vaughn, 2003 WL 21241669, at *7 (plaintiffs pleaded cause of action for aiding and abetting fraud where the attorneys "were allegedly a knowing and intentional part of the scheme to defraud plaintiffs, and gave substantial assistance by their participation in the closing, and by failing to bring up any irregularities or informing plaintiffs of their right to obtain an attorney of their choosing"). Therefore, the motion to dismiss the fraud claim against Maddiwar is denied.
CONCLUSION
For the foregoing reasons, defendants' motion to dismiss the complaint is granted in part and denied in part. Plaintiffs are granted leave to file an amended complaint for the purpose of alleging facts establishing that their claim under the Equal Credit Opportunity Act is timely.
SO ORDERED.