Dernier et al v. U.S. Bank National Association et al

MOTION to Dismiss for Failure to State a Claim

D. Vt.November 8, 2016

209 Battery Street PO Box 988 Burlington, VT 05402 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF VERMONT PETER DERNIER and NICOLE DERNIER, ) ) Plaintiffs, ) ) vs. ) ) Civil Action No. 2:16-cv-00230-WKS U.S. BANK NATIONAL ASSOCIATION AS ) TRUSTEE FOR CSMC MORTGAGE-BACKED ) PASS-THROUGH CERTIFICATES, SERIES ) 2006-3, MORTGAGE NETWORK, INC., and ) ROBERT A. MCINNES, ) ) Defendants. ) MOTION TO DISMISS OF DEFENDANTS MORTGAGE NETWORK, INC. AND ROBERT A. MCINNES NOW COME Defendants Mortgage Network, Inc. (“Mortgage Network”) and Robert A. McInnes (“McInnes”), through their attorneys, Dinse, Knapp & McAndrew, P.C., and hereby move under Fed. R. Civ. P. 12(b)(6) to dismiss the single cause of action Plaintiffs Peter Dernier (“Mr. Dernier”) and Nicole Dernier (“Mrs. Dernier”) (Mr. Dernier and Mrs. Dernier are referred to herein as “Plaintiffs”) allege against Mortgage Network and McInnes for failure to state a claim. In support of their Motion, Mortgage Network and McInnes state that Plaintiffs’ sole claim against Mortgage Network and McInnes, which is entitled “Conspiracy to Commit Fraud and Fraud,” is insufficient as a matter of law and fails to state a cognizable legal claim under Fed. R. Civ. P. 9(b) because Plaintiffs’ Third Amended Complaint (“TAC”) does not allege that Plaintiffs relied on any statements of Mortgage Network and/or McInnes, and reliance is one of Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 1 of 19 2 209 Battery Street PO Box 988 Burlington, VT 05402 the required legal elements of a claim for fraud. Mortgage Network and McInnes further state that Plaintiffs’ sole claim against them is insufficient as a matter of law because Plaintiffs’ TAC fails to allege facts supporting Plaintiffs’ conclusory allegation that they were damaged by statements of Mortgage Network and/or McInnes. Without allegations supporting the required elements of reliance and/or damages, Plaintiffs’ Conspiracy to Commit Fraud and Fraud claim against Mortgage Network and McInnes must be dismissed pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6). Mortgage Network and McInnes further state that, in viewing Plaintiffs’ TAC as whole, it is clear that Plaintiffs have not relied on any statements of Mortgage Network and/or McInnes, that Plaintiffs cannot allege they relied on any statements of Mortgage Network and/or McInnes, and that Plaintiffs cannot allege that they suffered any damages as a result of any statements of Mortgage Network and/or McInnes. Accordingly, Mortgage Network and McInnes respectfully request that their Motion be granted without leave to amend. In further support of their Motion, Mortgage Network and McInnes submit the following Memorandum. MEMORANDUM OF LAW I. INTRODUCTION This action was recently removed to this Court, but has a long procedural history in the Vermont State Court. At its core, this matter involves Plaintiffs’ attempt to avoid foreclosure on their home in Vermont. Among other things, Plaintiffs seek a judicial determination that Defendant U.S. Bank National Association as Trustee for CSMC Mortgage-Backed Pass- Through Certificates, Series 2006-3 (“U.S. Bank”) does not and has not had the right to seek collection on an October 7, 2005 promissory note in the principal amount of $242,250.00 (the Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 2 of 19 3 209 Battery Street PO Box 988 Burlington, VT 05402 “Note”) that Mr. Dernier executed in favor of Kittredge Mortgage Corporation (“Kittredge”). Kittredge assigned the Note to Mortgage Network and Mortgage Network indorsed the Note. A copy of the Note, with Kittredge’s assignment to Mortgage Network and Mortgage Network’s indorsement, is attached as Exhibit F to Plaintiffs’ TAC. See ECF # 1-1, at 49-52. The indorsement from Mortgage Network was issued by a former employee of Mortgage Network named Chad Goodwin (“Goodwin”). Plaintiffs allege that they “have uncovered a fraudulent scheme perpetrated by the banking industry,” in general, and U.S. Bank and Mortgage Network, in particular, “whereby they would exchange unendorsed promissory notes, hold them and only assign them to a particular trust once in default.” See Plaintiffs’ TAC, ¶ 8. The Note is one of three key documents relating to Plaintiffs’ claim against Mortgage Network and McInnes. A second key document is an April 2014 Affidavit Plaintiffs obtained from Goodwin, which states that the “mark” purporting to be Goodwin’s signature on the Note “is a forgery . . . .” A copy of Goodwin’s Affidavit is attached as Exhibit K to Plaintiffs’ TAC. See ECF # 1-1, at 103-04. The last key document is a June 29, 2016 “Ratification and Consent” (the “Ratification”) that Mortgage Network’s President, McInnes, executed on behalf of Mortgage Network and provided to U.S. Bank, which, in turn, provided the Ratification to Plaintiffs. The Ratification states that Mortgage Network, as the payee on the Note, “hereby ratifies and approves the indorsement of the Note” by Goodwin. A copy of the Ratification is attached as Exhibit Q to Plaintiffs’ TAC. See ECF # 1-1, at 137-42. Plaintiffs’ TAC contains seven Counts, only one of which is alleged against Mortgage Network and McInnes. Specifically, Plaintiffs’ Seventh Count alleges that U.S. Bank, Mortgage Network, and McInnes committed Conspiracy to Commit Fraud and Fraud by “conspir[ing] to Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 3 of 19 4 209 Battery Street PO Box 988 Burlington, VT 05402 ratify a forged endorsement in order for [U.S. Bank] to claim ownership of the Note.” See Plaintiffs’ TAC, ¶ 170. Plaintiffs’ other causes of action are directed only at U.S. Bank and are for: (1) Declaratory Judgment; (2) Unjust Enrichment; (3) Common Law Fraud; (4) Mail Fraud/RICO; (5) Violation of the Fair Debt Collection Practices Act; and (6) Violations of the Fair Credit Reporting Act. Plaintiffs contend that the evidence they have obtained to date makes it clear that the Note was never indorsed by Mortgage Network, either in blank or specifically to U.S. Bank, and that U.S. Bank fraudulently created the indorsement to the Note. Plaintiffs further contend that U.S. Bank has not provided any evidence to show that it paid value for the Note and, therefore, that U.S. Bank is not a holder in due course of the Note. The Ratification states, however, that Mortgage Network “was fully compensated for the transfer of the Note” and that Mortgage Network “waives and/or releases any claim it may have on the Note.” See ECF # 1-1, at 139. As to the claim against Mortgage Network and McInnes, Plaintiffs claim that McInnes recently provided U.S. Bank with a fraudulent acknowledged document, i.e., the Ratification, for use in this litigation. Plaintiffs allege that, by signing the Ratification for a forged instrument, Mortgage Network and McInnes have conspired with U.S. Bank to commit fraud. As noted above, despite Plaintiffs’ broad, sweeping, and generalized allegations of fraud and conspiracy, Plaintiffs fail to allege that they relied on any statements of Mortgage Network or McInnes. Plaintiffs further fail to allege that they relied in any way on the Ratification. Indeed, when Plaintiffs’ TAC is read in its totality, it is clear that Plaintiffs do not rely on the Ratification and that Plaintiffs dispute the Ratification. Plaintiffs’ TAC therefore lacks allegations supporting a required element of fraud. In addition, Plaintiffs’ TAC fails to allege in more than a conclusory fashion that Plaintiffs were damaged by the Ratification. Plaintiffs’ Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 4 of 19 5 209 Battery Street PO Box 988 Burlington, VT 05402 original Complaint, which was filed in 2011 in Vermont State Court, sought a declaratory judgment that U.S. Bank had no rights in the Note. Whatever damages Plaintiffs may have suffered in connection with the claims they asserted in 2011 were not caused by the Ratification, which did not exist in 2011 and which Mortgage Network provided to U.S. Bank in June 2016, shortly before Plaintiffs filed their TAC. Accordingly, as explained below, Mortgage Network and McInnes respectfully request that the Court dismiss Plaintiffs’ claim for Conspiracy to Commit Fraud and Fraud against Mortgage Network and McInnes, without leave to amend. II. ARGUMENT A. Factual Background On October 7, 2005, Plaintiffs purchased the property at-issue in this litigation, which is a single-family residence located in Weston, Vermont. Mr. Dernier obtained the loan himself, without utilizing Mrs. Dernier as a co-borrower. The home was purchased, however, in the name of both of the Plaintiffs. Mr. Dernier’s loan was a “no doc” loan for $242,250, at 7.875%. That same day, on October 7, 2005, Mr. Dernier executed the Note. Kittredge immediately assigned the Note and mortgage to Mortgage Network. See Plaintiffs’ TAC, ¶¶ 10-12. Plaintiffs’ TAC alleges that, in approximately November 2005, Select Portfolio Servicing (“SPS”) began servicing the Note, and, in approximately April 2006, America’s Servicing Company (“ASC”) began servicing the Note. Id. at ¶¶ 14, 18. Plaintiffs allege that, in the spring of 2007, they discovered an undisclosed waste oil spill on a neighboring property, which contaminated their well water. Id. at ¶ 19. This contamination allegedly reduced the value of Plaintiffs’ property, prompting Plaintiffs to seek multiple loan modifications, so that the outstanding principal balance and interest rate would be more in line Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 5 of 19 6 209 Battery Street PO Box 988 Burlington, VT 05402 with the true value of the property, given the alleged reduced value due to the oil contamination. Id. at ¶ 23. Plaintiffs allege that they contacted ASC to begin the loan modification process and that ASC advised Plaintiffs that they could not obtain a loan modification based on a diminution in the value of their property due to the alleged existence of an oil spill, but that they could obtain loan modification assistance by allowing their property to go into default. Id. at ¶ 24. Plaintiffs further allege that in February 2009 they received a copy of the Note with Mortgage Network’s indorsement and that Goodwin’s signature on the indorsement “immediately raised the suspicions of the Derniers.” Id. at ¶¶ 29-30. B. Procedural History In March 2011, Plaintiffs filed suit against Mortgage Network and the Mortgage Electronic Recording System (“MERS”) seeking a declaratory judgment that no party had legal authority to foreclose the Note. Id. at ¶ 35. In April 2011, Josh Lobe, Esq., forwarded a letter to Plaintiffs’ counsel enclosing a copy of the Note indorsed from Mortgage Network to U.S. Bank, and enclosing the Assignment of Mortgage from MERS as nominee for Kittredge. Id. at ¶ 36. Following the filing of the original Complaint, in response to motions to dismiss, Plaintiffs moved to amend the Complaint on two occasions. Id. at ¶ 37. Plaintiffs’ First Amended Complaint alleged that U.S. Bank’s assertion that it has been validly assigned the Note is fraudulent. Although Plaintiffs’ First Amended Complaint deleted or removed all allegations specifically directed to Mortgage Network, Plaintiffs’ First Amended Complaint continued to name Mortgage Network as a Defendant. See generally ECF # 19. In dismissing Plaintiffs’ First Amended Complaint, the Superior Court, Windsor Unit, Civil Division also denied Plaintiffs’ motion for leave to file a Second Amended Complaint. See Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 6 of 19 7 209 Battery Street PO Box 988 Burlington, VT 05402 ECF # 45. Plaintiffs appealed to the Vermont Supreme Court, which, in an October 18, 2013 decision (2013 VT 96), affirmed the trial court’s dismissal of Counts 3 and 4 (of Plaintiffs’ proposed Second Amended Complaint) and remanded as to Counts 1 and 2. Specifically, the issue on remand was whether U.S. Bank lacked the right to enforce the Note based on Plaintiffs’ allegation that the Note was “lost” or “stolen.” Plaintiffs’ TAC, ¶¶ 37-39. Following remand, Plaintiffs sought information to substantiate or authenticate the purchase of the Note by U.S. Bank and the subsequent conveyance of the Note to the trust of which U.S Bank is the Trustee. Id. at ¶ 40. Plaintiffs’ TAC contains numerous allegations relating to Plaintiffs’ investigation into the Note. The majority of these allegations do not involve Mortgage Network or McInnes. Id. at ¶¶ 41-101. The allegations relating to the Ratification are contained in paragraphs 102-24 of Plaintiffs’ TAC. None of these paragraphs contains any allegation that Plaintiffs relied on the Ratification; all of these allegations demonstrate Plaintiffs do not rely on the Ratification. None of these paragraphs contains any allegation that Plaintiffs were damaged by the Ratification. In July 2016, after successfully defeating U.S. Bank’s motion for summary judgment, Plaintiffs filed the TAC in the Superior Court of Vermont, Windsor Unit. Plaintiffs’ TAC added Mortgage Network and McInnes as Defendants. Id. at ¶¶ 4-6. In August 2016, Plaintiffs filed a motion to continue trial, which was set to commence later in August 2016. Plaintiffs argued that they were unfairly prejudiced by Mortgage Network’s Ratification because they had not had an opportunity to conduct any discovery relating to that document, which was provided to them on the eve of trial. The court agreed, and vacated the trial date. See ECF # 120. Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 7 of 19 8 209 Battery Street PO Box 988 Burlington, VT 05402 U.S. Bank then removed the action to this Court. See ECF # 1-1. U.S. Bank’s basis for removal was that Plaintiffs’ TAC raised new “federal question” issues, including allegations that U.S. Bank violated RICO and committed mail fraud, making resolution of this case in the federal district court appropriate. See ECF # 1, ¶¶ 7-13. Mortgage Network and McInnes have consented to removal of the action to this Court. See ECF # 128. U.S. Bank has filed an Answer to Plaintiffs’ TAC, as well as a Counterclaim against Mr. Dernier for breach of contract, based on his failure to pay the Note. See ECF # 4. Mr. Denier has filed an Answer to U.S. Bank’s Counterclaim. See ECF # 121. C. Legal Standard On a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a complaint must be read with “great generosity.” Yoder v. Orthomolecular Nutrition Institute, Inc., 751 F.2d 555, 558 (2d Cir. 1985) (citing Conley v. Gibson, 355 U.S. 41, 47-48 (1957)). Taking plaintiff’s allegations as true, the Court must construe the complaint in the light most favorable to the plaintiff and must draw all inferences in the plaintiff’s favor. Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989); Yoder, 751 F.2d at 562. The Court must not dismiss Plaintiffs’ TAC against Mortgage Network and/or McInnes “unless it appears ‘beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.’” Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir. 1985) (quoting Conley, 355 U.S. at 45-46). The U.S. Supreme Court enunciated a new standard for a motion to dismiss in Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 570 (2007). To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Id. at 570. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 8 of 19 9 209 Battery Street PO Box 988 Burlington, VT 05402 for the misconduct alleged. Id. at 556. The plausibility standard is not akin to a “probability requirement,” but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are “merely consistent with” a defendant’s liability, it “stops short of the line between possibility and plausibility of ‘entitlement to relief.’” Id. at 557 (brackets omitted). Two working principles underlie the Supreme Court’s decision in Twombly. First, the tenet that the 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. Id. at 555 (although for the purposes of a motion to dismiss the court must take all of the factual allegations in the complaint as true, the court is “not bound to accept as true a legal conclusion couched as a factual allegation” (internal quotation marks omitted)). Fed. R. Civ. P. 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions. Fed. R. Civ. P. 8 demands more than an “unadorned, the defendant-unlawfully-harmed-me accusation.” Id. Second, only a complaint that states a plausible claim for relief survives a motion to dismiss. Id. at 556. Determining 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. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not “show[n]”-“that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). In keeping with these principles, a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 9 of 19 10 209 Battery Street PO Box 988 Burlington, VT 05402 to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Though the Court will apply this federal standard for assessing whether the claims in Plaintiffs’ TAC against Mortgage Network and/or McInnes can survive a motion to dismiss, it is state law that will guide the Court in its analysis and determination of the sufficiency of the state law causes of action (i.e., all except objection to claim and equitable subordination). See Butner v. U.S., 440 U.S. 48, 54 (1979). Dismissal under Fed. R. Civ. P. 12(b)(6) is not warranted “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim which would entitle him to relief.” Harris v. City of New York, 186 F.3d 243, 247 (2d Cir. 1999); Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In ruling on such a motion, the Court must look only to the allegations in the complaint and any documents attached to or incorporated by reference in the complaint. See, e.g., Dangler v. New York City Off Track Betting Corp., 193 F.3d 130, 138 (2d Cir. 1999). Nonetheless, “[a] complaint which consists of conclusory allegations unsupported by factual assertions fails even the liberal standard of Rule 12(b)(6).” De Jesus v. Sears, Roebuck & Co., 87 F.3d 65, 70 (2d Cir. 1996); Iqbal, 556 U.S. at 678 (a pleading that offers “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do”; nor does a complaint suffice if it tenders “naked assertion[s]” that are devoid of further factual enhancement”) (quoting Twombly, 550 U.S. at 557). Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 10 of 19 11 209 Battery Street PO Box 988 Burlington, VT 05402 Additionally, in conjunction with the facial plausibility standard of Fed. R. Civ. P. 12(b)(6), Plaintiffs must satisfy the heightened pleading standard set forth in Fed. R. Civ. P. 9(b), which states: In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally. Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo Securities, LLC, 797 F.3d 160, 171 (2d Cir. 2015) (quoting Fed. R. Civ. P. 9(b)). In essence, Fed. R. Civ. P. 9(b) places two further burdens on Plaintiffs’ fraud claim against Mortgage Network and McInnes. The first goes to the pleading of the circumstances of the alleged fraud, the second to the pleading of Defendants’ alleged mental state. As to the first, Plaintiffs’ TAC must “(1) detail the statements (or omissions) that the plaintiff contends are fraudulent, (2) identify the speaker, (3) state where and when the statements (or omissions) were made, and (4) explain why the statements (or omissions) are fraudulent.” Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 187 (2d Cir. 2004) (internal quotation marks omitted). As to the second, though mental state may be pleaded “generally,” Plaintiffs must nonetheless allege facts “that give rise to a strong inference of fraudulent intent.” Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290-91 (2d Cir. 2006). In determining the adequacy of Plaintiffs’ fraud allegations under these various requirements, the Court must view the alleged facts in their totality, not in isolation. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322-23 (2007). At the Rule 12(b)(6) stage, the Court should credit all non-conclusory factual allegations in Plaintiffs’ TAC and draw all reasonable inferences in Plaintiffs’ favor. Nielsen v. Rabin, 746 F.3d 58, 62 (2d Cir. 2014). The Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 11 of 19 12 209 Battery Street PO Box 988 Burlington, VT 05402 question is whether such allegations and inferences plausibly indicate Plaintiffs’ entitlement to relief. See Iqbal, 556 U.S. at 678-80. D. Plaintiffs’ TAC Fails to State a Cognizable Legal Claim Against Mortgage Network and/or McInnes As noted above, Plaintiffs’ sole claim against Mortgage Network and McInnes is for Conspiracy to Commit Fraud and Fraud. Plaintiffs’ TAC fails to sufficiently allege the required elements of reliance and damages. 1. Civil Conspiracy Although Plaintiffs have alleged only one Count of their TAC against Mortgage Network and McInnes and have styled this Count as a claim for Conspiracy to Commit Fraud and Fraud, Vermont appears to recognize a cause of action for civil conspiracy. In the matter of Boutwell v. Marr, 71 Vt. 1, 42 A. 607, 608 (1899), the Vermont Supreme Court held that the grounds of recovery in a civil suit alleging conspiracy differ from criminal conspiracy in that a “civil action cannot be sustained unless something causing damage to the plaintiff has been done in furtherance of the agreement,” and “the thing done be something unlawful in itself.” Id. at 6, 42 A. at 609. The Boutwell Court emphasized that, even if there is an illegal purpose, “there can be no recovery unless illegal means were employed.” Id. at 6-7, 42 A. at 609. A plaintiff must properly plead that an “illegal means” was used in furtherance of the claimed conspiracy. Davis v. Vile, No. 2002-465, 2003 WL 25746021, at *3 (Vt. Mar. 2003) (unpublished entry order). Here, Plaintiffs’ TAC is bereft of any allegations that Mortgage Network and/or McInnes used an “illegal means” as part of their alleged conspiracy with U.S. Bank. Plaintiffs do not allege the Ratification is an “illegal means,” and it is clear that there is nothing “illegal” about Mortgage Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 12 of 19 13 209 Battery Street PO Box 988 Burlington, VT 05402 Network providing the Ratification to U.S. Bank or McInnes executing the Ratification on behalf of Mortgage Network. The Vermont Supreme Court also has held that “[a]ll who aid in the commission of a tort by another, or who approve of it after it is done, if done for their benefit, are liable in the same manner as they would be if they had done it with their own hands.” Dansro v. Scribner, 108 Vt. 408, 411 (1936). In a trial court decision in the matter of Todd v. Geno, the Superior Court of Vermont-in the context of a motion to dismiss1-cited a Vermont Supreme Court decision, Sheple & Warner v. Page, 12 Vt. 519 (1840), which held that, “where two or more combine together for the same illegal purposes, each is to be considered as the agent of the others, and the act of one, in pursuance of the object, is, in legal contemplation the act of all”-as long as damages are proved. Todd v. Geno, No. 75-1-13 Rncv, 2013 WL 7346963 at *5-6 (Sept. 23, 2013) (Toor, J.). The Todd trial court also cited Boutwell v. Marr, mentioned above, and held that the reasoning in that decision “seems to acknowledge the existence of such a civil cause of action [for conspiracy], at least back in 1899” (wherein the court explained “a civil action cannot be sustained unless something causing damage to the plaintiff has been done in furtherance of the agreement; and it is claimed to be also requisite that the thing done be something unlawful in itself.” Boutwell, 71 Vt. 1). The Todd trial court further cited James L. Buchwalter, Cause of Action for Civil Conspiracy, 54 Causes of Action 2d, § 2 (2012), which states: When two or more persons agree to perform a wrongful act and carry out the plan, the law imposes civil liability on all of the persons for the resulting damages regardless of whether they actually committed the wrongful act themselves. The effect of this conspiratorial conduct is thus to implicate all who agree to the plan to commit the wrong, as well as those who actually carry it out. 1 The defendant in this action was specifically alleging as its basis for the motion to dismiss that there exists no independent cause of action for civil conspiracy in Vermont. Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 13 of 19 14 209 Battery Street PO Box 988 Burlington, VT 05402 The Todd trial court ultimately concluded that, because a cause of action for “civil conspiracy” has been accepted in at least two separate Vermont Supreme Court decisions and has not been “expressly rejected by the Vermont Supreme Court,” a cause of action for civil conspiracy can proceed so long as the complaint sets forth the requisite allegations of concerted action to use illegal means to obtain an unlawful result. Here, Plaintiffs’ TAC fails to contain the requisite allegations that Mortgage Network and/or McInnes acted in concert with U.S. Bank to use illegal means to obtain an unlawful result. The U.S. District Court for the District of Vermont also recently examined this issue in the matter of Saunders v. Morton, and also cited Davis v. Vile. The Vermont District Court, however, saw the court’s ruling in that matter to suggest that “some doubt exists as to whether the tort of civil conspiracy continues to be an independent cause of action in Vermont.” Saunders v. Morton, No. 5:09-CV-125, 2011 WL 1135132, at *9-10 (D. Vt. Feb. 17, 2011), report and recommendation adopted, No. 5:09-CV-125, 2011 WL 1114416 (D. Vt. Mar. 24, 2011). Still, the Saunders Court also referenced the fact that it has issued decisions in the past in which it had been assumed that there is such an independent cause of action and the Court ultimately held in that action that the plaintiff had alleged facts sufficient to state a claim for civil conspiracy. Even more recently, in Catamount Radiology, P.C. v. Bailey, the Vermont District Court, in ruling on a motion to dismiss, did not even question whether such a cause of action existed in Vermont and only analyzed whether the plaintiff had sufficiently plead the cause of action under the Twombly standard: “To state a claim for civil conspiracy under Vermont law a plaintiff must allege the existence of ‘a combination of two or more persons to effect an illegal purpose, either Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 14 of 19 15 209 Battery Street PO Box 988 Burlington, VT 05402 by legal or illegal means, or to effect a legal purpose by illegal means.’” Catamount Radiology, P.C. v. Bailey, No. 1:14-CV-213, 2015 WL 5089104, at *3 (D. Vt. Aug. 27, 2015) (citing Boutwell, 42 A. at 609). In sum, it appears that Vermont recognizes a separate claim for civil conspiracy so long as the plaintiff pleads the co-conspirators engaged in an action to achieve some result by “illegal means.” Plaintiffs’ TAC fails to contain such required allegations. 2. Fraud Vermont also recognizes a cause of action for fraud. In sum, to maintain a cause of action for fraud, Plaintiffs must demonstrate five elements: (1) intentional misrepresentation of a material fact; (2) that was known to be false when made; (3) that was not open to the defrauded party’s knowledge; (4) that the defrauded party act[ed] in reliance on that fact; and (5) was thereby harmed. Felis v. Downs Rachlin Martin PLLC, 2015 VT 129, ¶ 13, 133 A.3d 836, 842. Plaintiffs’ TAC is defective because it does not contain allegations supporting the required elements of reliance and damages. Plaintiffs’ TAC does not state the particular allegedly false statements or allegedly intentional misrepresentations of a material fact by Mortgage Network or McInnes upon which Plaintiffs relied, and the TAC does not state how Plaintiffs have been damaged as a result of any statements or actions of Mortgage Network or McInnes. In pleading their allegations of fraud against U.S. Bank, Plaintiffs have alleged that they were improperly led to believe that U.S. Bank had a right to initiate foreclosure proceedings, Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 15 of 19 16 209 Battery Street PO Box 988 Burlington, VT 05402 which allegedly caused damage to Plaintiffs. Plaintiffs make the same broad and conclusory allegations that “by signing the Ratification for a forged instrument, [Mortgage Network] and Robert McInnes have conspired with [U.S. Bank] commit fraud” and that the “fraudulent ratification has caused injury to Plaintiffs by allowing USB to claim it’s the holder of the Note and seek collection on a debt for which it paid no value.” See Plaintiffs’ TAC, ¶ 175. These allegations regarding Plaintiffs’ claimed damages are problematic for several reasons. First, U.S. Bank claimed it was the legal holder of the Note well before Mortgage Network and/or McInnes made any statements regarding U.S. Bank’s ownership of the Note and well before Mortgage Network and/or McInnes issued the Ratification of Goodwin’s signature on the indorsement of the Note. Accordingly, Plaintiffs could not and did not actually “rely” on any statements by Mortgage Network and/or McInnes in the Ratification. When considering Plaintiffs’ pleadings as a whole, Plaintiffs cannot argue they in fact relied on any statements of Mortgage Network and/or McInnes in the Ratification. In reality, the totality of Plaintiffs’ TAC demonstrates the complete opposite is true as Plaintiffs began their legal challenge to U.S. Bank’s claim of ownership of the Note as early as 2011 with the filing of their first Complaint in Superior Court. Second, the TAC does not expressly state how Plaintiffs have been injured or damaged as a result of the actions of Mortgage Network and/or McInnes. Plaintiffs admit that no foreclosure proceedings have been initiated. The only “damage” that Plaintiffs alleged is a conclusory statement regarding damages and an allegation that U.S. Bank is seeking collection on the Note. The Court should view Plaintiffs’ TAC in its entirety and not accept these conclusory allegations as true. Iqbal, 556 U.S. at 678 (courts are not bound to accept as true allegations that are legal conclusions, even if cast in the form of factual allegations). Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 16 of 19 17 209 Battery Street PO Box 988 Burlington, VT 05402 Finally, the real issue and problem regarding Plaintiffs’ alleged damages is the timeline. This action was initiated well before any of the alleged wrongdoing by Mortgage Network or McInnes occurred. Logically, Plaintiffs cannot reasonably and plausibly claim that the allegedly “fraudulent” statements by Mortgage Network and/or McInnes to ratify the indorsement on the Note were statements upon which Plaintiffs relied and that could have actually led to Plaintiffs’ claimed damages. 3. Plaintiffs Cannot Allege Reliance or Damages; Leave to Amend Should be Denied According to Fed. R. Civ. P. 15(a)(2), “[t]he court should freely give leave [to amend] when justice so requires.” The Second Circuit has held, however, that such leave should be denied if an amendment would be futile if a proposed claim would not withstand a motion to dismiss under Rule 12(b)(6). Dougherty v. Town of N Hempstead Bd. of Zoning Appeals, 282 F.3d 83, 88 (2d Cir. 2002). In Martin v. Dickson, the court denied the plaintiff the ability to further amend the complaint and noted, “this is not plaintiff’s first bite at the apple: ‘[t]his is not the first action brought by Martin seeking, in essence, to challenge portions of the various bankruptcy proceedings.’” Martin v. Dickson, 100 F. App’x 14, 16 (2d Cir. 2004). Here, Plaintiffs’ TAC is hardly their “first bite at the apple.” Plaintiffs have been challenging the validity of U.S. Bank’s claim of ownership of the Note as early as 2011 and admittedly have been “suspicious” about the Note since as early as 2009. See Plaintiffs’ TAC, ¶¶ 29-30. As noted above, this timeline simply makes it impossible for Plaintiffs to amend their TAC to properly allege that they relied on any statements of Mortgage Network and/or McInnes (i.e., the Ratification) or to allege that they suffered any real damages as a result of the Ratification. Plaintiffs cannot have it both ways and argue on the one hand that they have been Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 17 of 19 18 209 Battery Street PO Box 988 Burlington, VT 05402 challenging the validity of the Note since 2011 and on the other hand allege that they were defrauded by the Ratification in 2016. As such, any attempt by Plaintiffs to amend their TAC would be futile, and Defendants’ Motion to Dismiss should be granted without leave to amend. 4. Request for Oral Argument Pursuant to L.R. 7(a)(6), Mortgage Network and McInnes hereby request oral argument on the instant Motion to Dismiss. III. CONCLUSION For all of the foregoing reasons, it is clear that Plaintiffs have failed to properly plead their Conspiracy to Commit Fraud and Fraud cause of action against Mortgage Network and McInnes pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6). Plaintiffs have not, and cannot, logically and plausibly allege that they actually relied on any intentional misrepresentation of any material fact by Mortgage Network and/or McInnes or that they were damaged by any alleged intentional misrepresentation allegedly made by Mortgage Network and/or McInnes. Given the timeline of events and after considering Plaintiffs’ TAC in its totality, any attempt by Plaintiffs to amend their pleadings as to Mortgage Network and McInnes would be futile, and Mortgage Network and McInnes respectfully request that this Court grant their Motion to Dismiss without leave to amend. Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 18 of 19 19 209 Battery Street PO Box 988 Burlington, VT 05402 Dated: November 8, 2016 DINSE, KNAPP & McANDREW, P.C. By: /s/ Wm. Andrew MacIlwaine Wm. Andrew MacIlwaine, Esq. Attorney for Defendants Mortgage Network, Inc. and Robert A. McInnes CERTIFICATE OF SERVICE I, Wm. Andrew MacIlwaine, Esq., certify that on November 8, 2016, I electronically filed the foregoing document with the Clerk of Court using the CM/ECF system. The CM/ECF system will provide service of such filing via Notice of Electronic Filing (NEF) to the following parties: Russell D. Barr, Esq. Andre D. Bouffard, Esq. Jeffrey S. Patterson, Esq. David M. Pocius, Esq. Christopher J. Valente, Esq. DINSE, KNAPP & McANDREW, P.C. By: /s/ Wm. Andrew MacIlwaine Wm. Andrew MacIlwaine, Esq. 209 Battery St., P.O. Box 988 Burlington, VT 05401 Attorney for Defendants Mortgage Network, Inc. and Robert A. McInnes Case 2:16-cv-00230-wks Document 134 Filed 11/08/16 Page 19 of 19