UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
——————————————————-x
MORTGAGE RESOLUTION SERVICING,
LLC, et al.,
Plaintiffs,
-v- No. 15 CV 293-LTS-JCF
JPMORGAN CHASE BANK, N.A., et al.,
Defendants
Excerpts:
Plaintiffs Mortgage Resolution Servicing, LLC (“MRS”), S&A Capital Partners,
Inc. (“S&A”), and 1st Fidelity Loan Servicing, LLC (“1st Fidelity” and, collectively with MRS
and S&A, “Plaintiffs”), are in the business of purchasing from financial institutions and
servicing portfolios of nonperforming residential mortgage loans. (TAC ¶¶ 11-12.) All three
companies are Florida corporations whose president is Laurence Schneider. (TAC ¶¶ 2-4.)
S&A and Chase entered into a Master Mortgage Loan Sale Agreement (the “MMLSA”) in
approximately April 2005. (TAC ¶¶ 13-14.) S&A and 1st Fidelity bought loans from Chase
pursuant to the MMLSA from 2005 through 2010. (TAC ¶¶ 14-17.)
In 2008, Eddie Guerrero, a Loss Recovery Supervisor at Chase, contacted
Schneider to discuss Chase’s interest in selling a portfolio of first-lien residential mortgage
loans. (TAC ¶ 19.) Guerrero represented that this set of loans included mortgages on low-value
properties in areas experiencing a significant housing crisis as well as some more valuable loans
that had erroneously been charged off by Chase. (TAC ¶¶ 19-20.) Schneider provided Chase
with an application to purchase the pool of loans. (TAC ¶ 21.)
In October 2008, Guerrero sent Schneider preliminary information on the loan
portfolio, but the information was incomplete. (TAC ¶ 22.) A more complete spreadsheet
(though one still missing some information) was sent to Schneider in November 2008. The
November 2008 spreadsheet indicated that the portfolio included 5,785 first-lien mortgages with
an aggregate balance of approximately $230 million. (TAC ¶ 24.) Chase represented that the
reason for the missing information in the November spreadsheet was that Chase was still
processing information it received during its acquisition of Washington Mutual, Inc. (TAC
¶ 26.)
In December 2008, Schneider told Guerrero that he would not make an offer to
purchase the mortgage portfolio. (TAC ¶ 29.) In response, Guerrero offered to sell the portfolio
for $200,000. (TAC ¶ 30.) Based on an analysis of the November data set, which included
several loans Schneider believed to be valuable, Schneider agreed to purchase the portfolio for
$200,000. (Id.) On December 22, 2008, Schneider formally communicated an offer to purchase
a $100 million portfolio of first-lien mortgages,1
and sent a cashier’s check for $200,000 to
Chase the following day. (TAC ¶¶ 32-33.)
On February 4, 2009, Chase sent Schneider a Mortgage Loan Purchase
Agreement (the “MLPA”), which contract would govern the sale of the mortgage portfolio.
(TAC ¶ 35.) The February 4 draft of the MLPA contained a placeholder for “Exhibit A”, which
was to list the mortgages being sold. (Id.) The draft did, however, represent that Chase would
be conveying 4,271 loans with an aggregate balance of $172,093,033.13.2
(Id.) Chase told Schneider that the final version of Exhibit A would not be provided until after the MLPA was
signed. (TAC ¶ 36.)
The final version of the MLPA, signed by Chase and MRS, was sent to Schneider
on February 25, 2009. (TAC ¶¶ 37-38.) The final MLPA provided for the sale of 3,529
mortgages with an aggregate balance of $156,324,399.24 (per the nomenclature used by the
TAC, the “MRS Loans”). (TAC ¶ 38.) The TAC alleges that Chase included an additional $56
million in mortgages above Schneider’s $100 million purchase offer, without requesting any
additional consideration, was that Chase knew that the MRS Loans had been serviced in
violation of state and federal law, and Chase was therefore transferring to MRS a significant set
of liabilities. (TAC ¶¶ 40-41.) The TAC alleges that this represented a violation of the MLPA’s
representations and warranties, which provided that the mortgages complied with applicable
laws. (TAC ¶¶ 41-43.) The TAC alleges that the allegedly false statements made by Chase prior
to the signing of the MLPA represent both fraudulent inducement and negligent
misrepresentation. (TAC ¶¶ 176-192.)
On February 25, 2009, after the MLPA had been fully executed, Chase sent
Schneider the list of mortgages that was Exhibit A to the agreement. (TAC ¶ 46.) The version
of Exhibit A Schneider received was missing significant data, however, including the
outstanding balance of the loans and the addresses of the mortgaged properties. (TAC ¶ 46.)
Chase represented to Schneider that the missing information was due to Chase’s difficulty in
converting information from Washington Mutual’s system, as had been the case with the
November 2008 data set. (TAC ¶ 47.) MRS was forced to spend its own resources to complete
the information for the Exhibit A mortgages. (TAC ¶ 49.)
The TAC alleges that the list of mortgages contained in Exhibit A violated
multiple provisions, representations, and warranties contained in the MLPA. As relevant to the
instant motion to dismiss, the TAC alleges:
• Chase never provided a complete Exhibit A, and its representations that the
reason Exhibit A was incomplete was due to Washington Mutual’s systems were
false because none of the MRS Loans contained in Exhibit A had been originated
by Washington Mutual (TAC ¶¶ 46-48);
• Chase had serviced the MRS Loans unlawfully (TAC ¶ 60);
• After the MLPA was executed, Chase contacted borrowers of MRS Loans, as
well as loans previously purchased by S&A and 1st Fidelity under the MMLSA,
and represented that Chase was forgiving the entire balance of their mortgage
loan pursuant to the National Mortgage Settlement (“NMS”) between Chase and
the federal government (TAC ¶¶ 97-109);
• After the MLPA was executed, and also pursuant to the terms of the NMS, Chase
released liens on properties whose mortgages had been sold to MRS, S&A, and
1st Fidelity (TAC ¶¶ 134-140).
Plaintiffs’ Tort Claims (Counts Four through Eight)
As to Plaintiffs’ claims for fraudulent inducement and negligent
misrepresentation, however, Plaintiffs have sufficiently identified underlying facts separate and
apart from those on which their breach of contract claims are based. Under New York law, a
plaintiff may plead fraud claims alongside contract claims if they “allege misrepresentations of
present fact, not merely misrepresentations of future intent to perform under the contract.” Wyle
Inc. v. ITT Corp., 130 A.D.3d 438, 439 (N.Y. App. Div. 1st Dep’t 2015). Such
misrepresentations can support a separate fraud claim where, as here, “a plaintiff alleges that it
was induced to enter into a transaction because a defendant misrepresented material facts,”
because such misrepresentations are “collateral to the contract (though [they] may have induced
the plaintiff to sign the contract) and therefore involve[] a separate breach of duty.” First Bank
of Ams. v. Motor Car Funding, 257 A.D.2d 287, 291 (N.Y. App. Div. 1st Dep’t 1999). MRS
adequately alleges that Defendants made false and/or misleading representations concerning the
characteristics of the mortgage pool prior to the signing of the MLPA, which induced MRS to
sign the MLPA. These allegations suffice to state claims that are not duplicative of the breach of
contract claim, and Defendants’ motion to dismiss the fraud and negligent misrepresentation
counts (nos. five and six in the TAC) are therefore denied.
[…]
CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss is denied with respect to counts six and seven of the TAC, … Plaintiffs may move for leave to amend by March 6, 2017, which motion must be accompanied by a proposed amended complaint and a blackline comparison of the proposed amended complaint to the Complaint.
