GREGORY JOHNSON, an individual, Plaintiff,
v.
HSBC BANK USA, NATIONAL ASSOCIATION AS TRUSTEE FOR THE ELLINGTON TRUST SERIES 2007-1; BANK OF AMERICA, N.A.; and Does 1-10, inclusive, Defendants.

 

 Case No. 3:11-cv-2091-JM-WVG.

United States District Court, S.D. California. March 19, 2012.

ORDER DENYING MOTION TO DISMISS Docket No. 12.

JEFFREY T. MILLER, District Judge.

On September 12, 2011, Plaintiff Gregory Johnson brought a complaint against HSBC Bank USA, National Association as Trustee for the Ellington Trust Series 2007-1 (“HSBC”) and Bank of America, N.A. (“BOA”). BOA has filed a motion to dismiss (“MTD” or “motion”). Plaintiff filed an opposition on February 17, 2012. HSBC originally failed to answer the complaint, but jointly moved with Plaintiff to set aside default. The court granted that motion, and HSBC now joins BOA’s motion to dismiss with no further argument. Neither Defendant has filed a reply brief. For the reasons stated below, the motion is DENIED.

I. BACKGROUND

In December of 2006, Plaintiff obtained a loan from Fremont Investment & Loan (“Fremont”) in order to purchase property located in Oceanside, California. Compl. ¶ 24. The Deed of Trust named Mortgage Electronic Registration Systems (“MERS”) as the nominee and beneficiary of the Deed of Trust. ¶ 24. The complaint alleges that Fremont “attempted to securitize and sell [the] loan to another entity or entities” that were “not HSBC Bank or the Ellington Trust.” ¶ 25. Consequently, HSBC “is merely a third-party stranger to the loan transaction.” ¶ 26. Plaintiff alleges that despite his requests, BOA (apparently his mortgage servicer), has failed to verify the debt and amount owed.^[1] ¶ 26.

Specifically, Plaintiff alleges that the document purporting to assign the Deed of Trust from MERS to HSBC (Compl. Ex. A), dated May 29, 2008, was fraudulent, in part because the assignment was executed after the closing date of the trust, which violates the Pooling and Servicing Agreement (“PSA”).^[2] ¶ 28-29. Plaintiff also alleges that Treva Moreland, “the purported signatory of the purported `Assignment’, was not the `Assistant Secretary’ for MERS and lacked the requisite corporate and legal authority to effect an actual `assignment’ of Plaintiff’s Note and Mortgage.” ¶ 38. The complaint states that Treva Moreland signs thousands of property record documents without any authority, and thus any amount Plaintiff owes is subject to equitable offset by damages owed by Defendants.

The complaint further alleges that in October of 2010, HSBC “caused a document purporting to be a Substitution of Trustee (`Substitution’) to be recorded with the County of San Diego.” ¶ 57. The substitution purported to substitute Quality Loan Service Corporation (“Quality”) as trustee, but Plaintiff claims that no such transfer ever occurred. ¶ 57. The complaint states that under California law, the lender must be the party to appoint the successor trustee, and HSBC was not the lender.

In the summer of 2009, Plaintiff sought a loan modification from Wilshire, the original servicer of Plaintiff’s loan. ¶ 66. At some point the loan “was sold or transferred to BOA.” ¶ 67. Plaintiff made nine payments under the modified plan, but BOA refused to honor the new plan. ¶ 68. After much confusion, Plaintiff obtained a loan modification from BOA to be effective February 1, 2011. ¶ 79. In March of 2011, Plaintiff sent a Qualified Written Request letter to verify the debt owed, but BOA did not provide a substantive response. ¶ 83.

Plaintiff also alleges that Defendants have not properly credited payments he has made on the mortgage and have incorrectly calculated interest. ¶ 85. He claims that Defendants knew at all times that Plaintiff was paying incorrect amounts. ¶ 86. As a result of their actions, Plaintiff’s credit has been damaged and his home has been made unmarketable because “the title to Plaintiff’s home has been slandered [and] clouded.” ¶ 89. Finally, the complaint states that “Plaintiff has offered to and is ready, willing, and able to unconditionally tender his obligation.” ¶ 96.

Based on these factual allegations, the complaint seeks relief under seven causes of action, each applied to both Defendants: (1) declaratory relief under 28 U.S.C. §§ 2201-2202; (2) negligence; (3) quasi-contract; (4) violation of 12 U.S.C. § 2605; (5) violation of 15 U.S.C. § 1692; (6) violation of Cal. Bus. & Prof. Code § 17200 et seq.; (7) accounting.

II. LEGAL STANDARD AND DISCUSSION

A motion to dismiss under Fed. R. Civ. P. 12(b)(6) challenges the legal sufficiency of the pleadings. De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978). In evaluating the motion, the court must construe the pleadings in the light most favorable to the non-moving party, accepting as true all material allegations in the complaint and any reasonable inferences drawn therefrom. See, e.g., Broam v. Bogan, 320 F.3d 1023, 1028 (9th Cir. 2003). The Supreme Court has held that in order to survive a 12(b)(6) motion, “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The court should grant 12(b)(6) relief only if the complaint lacks either a “cognizable legal theory” or facts sufficient to support a cognizable legal theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

A. Viability of Attack on Loan Securitization

1. Ability to Challenge Loan Securitization

The threshold issue of whether Plaintiff can make any claim related to the loan’s securitization affects the viability of many of the individual claims discussed below. BOA cites Rodenhurst v. Bank of America, 773 F.Supp.2d 886, 899 (D. Haw. 2011) for its statement that “[t]he overwhelming authority does not support a cause of action based upon improper securitization.” However, the discussion cited in that case centers on plaintiffs who claim that securitization itself violates the agreement between the mortgagor and mortgagee. Here, Plaintiff does not dispute the right to securitize the mortgage, but alleges that as a result of improper procedures, the true owner of his mortgage is unclear. As a result, he has allegedly been paying improper entities an excess amount.

Ninth Circuit district courts have come to different conclusions when analyzing a plaintiff’s right to challenge the securitization process as Plaintiff has here. See Schafer v. CitiMortgage, Inc., 2011 WL 2437267 (C.D. Cal. 2011) (denying defendants’ motion to dismiss declaratory relief claim, which was based on alleged improper transfer due to alleged fraud in signing of documents); Vogan v. Wells Fargo Bank, N.A., 2011 WL 5826016 (E.D. Cal. 2011) (allowing § 17200 claim when plaintiffs alleged that assignment was executed after the closing date of securities pool, “giving rise to a plausible inference that at least some part of the recorded assignment was fabricated”). But see Armeni v. America’s Wholesale Lender, 2012 WL 603242 (C.D. Cal. 2012) (dismissing declaratory relief, quasi-contract, UCL, and accounting claims because “plaintiff lack[ed] standing to challenge the process by which his mortgage was (or was not) securitized because he is not a party to the PSA”); Junger v. Bank of America, N.A., 2012 WL 603262 at *3 (C.D.Cal. 2012).

Here, the court finds that Plaintiff is not categorically excluded from making claims based on allegations surrounding the loan’s securitization.^[3] As in Vogan, and unlike Armeni, Plaintiff here alleges both violations of the PSA and relevant law. BOA has not sufficiently demonstrated that violations of law associated with the loan’s securitization can go unchecked because Plaintiff is not a party to the PSA.

Other cases cited by BOA on this issue are irrelevant or inapplicable here.

2. Sufficiency of Allegations of Improper Assignment

BOA also argues that Plaintiff makes no showing that the assignment was improper. It claims that Treva Moreland was authorized to assign the Deed of Trust, and there was no violation of the statute, asserting that “[n]owhere in [the complaint] does [Plaintiff] allege facts showing the Assignment was defective, invalid, or somehow voidable.” MTD at 4. However, the complaint states that MERS had no knowledge of the assignment, that Treva Moreland was never appointed to “assistant secretary” by the MERS board of directors, and thus there was no authority to make the assignment.

While BOA cites no case law on this point, Plaintiff provides persuasive authority to demonstrate that courts have accepted allegations such as his. In Kingman Holdings, LLC v. CitiMortgage, Inc., 2011 WL 1883829 (E.D. Tex. 2011), the court assessed a fraud claim against CitiMortgage in which the plaintiff alleged that MERS’ appointment of an assistant secretary (“Blackstun,” who later made the assignment) was invalid because it was not approved by the board of directors. The court upheld the fraud claim under the 9(b) standard, finding that Plaintiff’s allegations were plausible and that if Blackstun had no authority to bind MERS, then MERS filed a fraudulent document after he executed the assignment.

Similarly, in Vogan, the court denied defendants’ motion to dismiss a § 17200 claim because, as here, the plaintiff pleaded that Wells Fargo recorded a fabricated assignment of the loan because the assignment was executed after the closing date of the mortgage-backed security pool, “giving rise to a plausible inference” of fabrication. Id. at *7. Here, in addition to attacking Treva Moreland’s authority, Plaintiff has alleged that the assignment was made after the closing date of the trust, as required by Section 2.1 of the PSA.

B. Tender Requirement

BOA also argues that a plaintiff “must tender the entire unpaid balance of the loan to maintain an action challenging foreclosure.” MTD at 4. However, as BOA separately points out, Plaintiff is not currently in foreclosure—BOA rescinded its Notice of Default in March of 2011. BOA fails to acknowledge this fact in its argument, merely citing cases supporting the existence of the tender rule in actions for wrongful foreclosure.

Even if the fact of foreclosure were at issue, BOA has not sufficiently demonstrated that the tender rule should apply here. Plaintiff is not challenging Defendants’ compliance with the foreclosure law, but is claiming that defendants did not properly receive the assignment of their loan. The “tender requirement does not apply to this case because” Plaintiff challenges “the beneficial interest held by [Defendants] in the deed of trust, not the procedural sufficiency of the foreclosure itself.” Vogan at *8.

C. Declaratory Relief

BOA seeks dismissal of the declaratory relief claim because the issues “will be resolved by the other claims for relief.” MTD at 5. It also argues that the California foreclosure statute does not recognize a judicial action to determine whether a party foreclosing is authorized to do so.

The Ninth Circuit has explained that while there is no bar to declaratory relief if legal remedies exist, a court’s discretion should lead it to refuse to grant declaratory relief unless it would clarify the parties’ interests or relieve the uncertainty giving rise to the proceeding. U.S. v. Washington, 759 F.2d 1353, 1356-57 (9th Cir. 1985). The Schafer court upheld a declaratory relief claim in a similar action to this one, noting that there was a controversy over whether the assignment of a deed of trust was fraudulent, and the cause of action was not duplicative. 2011 WL 2437267 at *4.

While it is possible that declaratory relief will be unnecessary, it would be premature to dismiss the cause of action at this point. BOA has failed to show how resolution of each of the other claims will necessarily provide all of the requested relief if they are granted. Further, it remains possible that some or all of Plaintiff’s other claims will not survive to trial—if that occurs, declaratory judgment could serve to clarify the parties’ interests.

D. Negligence

The complaint alleges that HSBC and BOA were negligent because they demanded mortgage payments when they did not have the right to enforce that obligation. This allegedly caused Johnson to overpay in interest, among other things. As a result of the “reckless negligence, utter carelessness, and blatant fraud of the Defendants,” Plaintiff’s chain of title has been “rendered unmarketable and fatally defective.” Compl. ¶ 110.

Defendants’ motion to dismiss argues that they had no duty of care here, because Plaintiff “does not plead facts supporting a finding that Defendant’s conduct exceeded the scope of its conventional role as a lender.”^[4] MTD at 6. Plaintiff states that his relationship with BOA is not conventional because the loan has been securitized, so “Defendants hold Plaintiff’s payments for the benefit of the certificate holders.” Pl. Opp. at 20. Further, Plaintiff argues that a lender that offers a loan modification has gone beyond its conventional role.

The rule that a lender does not have a duty to a borrower is only a “general rule,” and only applies to situations where a lender plays its conventional role. E.g., Taheny v. Wells Fargo Bank, N.A., 2010 WL 5394315 (E.D. Cal. 2010). Accepting the allegations of the complaint as true, BOA has gone beyond the typical lender’s role. As in Ansanelli v. JP Morgan Chase Bank, N.A., 2011 WL 1134451 at *7 (N.D. Cal. 2011), BOA established a loan modification plan with Plaintiff, made excessive interest charges and made “derogatory credit reports to credit bureaus.” Compl. ¶ 109. More generally, Plaintiff alleges that BOA did not have the legal authority to demand payments from Plaintiff because of the assignment’s invalidity. If BOA was not a lender legally authorized to collect payments from Plaintiff, the general rule shielding actual lenders from liability would not apply.

More generally, the court finds that the allegations Plaintiff has put forth meet the federal pleading standard under Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). While yet to be proven, Plaintiff presents plausible allegations of misconduct that, if true, would entitle him to relief.

E. Quasi-Contract

Based upon the same factual allegations, Plaintiff seeks to recover on a quasi-contract cause of action. BOA maintains that in California a quasi-contract claim is the same as a claim for unjust enrichment, and such an action does not lie if an express agreement governs the parties’ rights. Further, BOA argues that the rule of tender applies under Cal. Civ. Code § 1691(b), which governs rescission of a contract.

BOA is correct that a plaintiff may not recover on a quasi-contract action if an express agreement exists. E.g., Cal. Med. Ass’n, Inc. v. Aetna U.S. Healthcare of Cal., 94 Cal. App. 4th 151, 172 (2001). However, as Plaintiff points out, the complaint alleges that there is no valid agreement governing the transaction between Plaintiff and BOA. Thus, if Plaintiff succeeds in showing that BOA was not authorized to collect payment, he may be able to recover based on quasi-contract. For the same reason, BOA’s § 1691 argument fails—it does not state why the tender rule should apply if no contract exists.

F. Violation of 12 U.S.C. § 2605 — The Real Estate Settlement Procedures Act

The complaint alleges that Plaintiff sent a Qualified Written Request (“QWR”) to BOA in March of 2011 asking for information to verify the validity of the debt at issue. However, BOA failed to provide the legally-required information, only providing a partial history of the account.

BOA’s motion to dismiss states that instead of including information about why the account was in error, the QWR “includes a list of document demands which appear to be entirely irrelevant to a valid QWR under RESPA.” MTD at 9. Further, BOA maintains that Plaintiff’s damage claims are not sufficiently specific.

1. Whether Plaintiff Failed to Submit a Proper QWR

Generally, Ninth Circuit courts have held that a QWR must relate to the servicing of a loan, rather than its creation or modification. Gates v. Wachovia Mortg. FSB, 2011 WL 2602511 at *3 (E.D. Cal. 2010). Further, the “borrower’s inquiry must include a statement of the reasons for the belief of the borrower . . . that the account is in error or provide sufficient detail to the servicer regarding other information sought by the borrower.” Id; 12 U.S.C. § 2605(e).

BOA has not argued that the QWR was unrelated to servicing of the loan, but states that Plaintiff did not provide “a statement or supporting documentation of his reasons for believing the account was in error.” MTD at 9. While Plaintiff may not have stated the reasons he believed the account was in error, Defendant provides no argument on why it believes that the QWR failed to “provide sufficient detail to the servicer regarding other information sought by the borrower,” merely arguing that the list of document demands “appear to be entirely irrelevant to a valid QWR under RESPA.” MTD at 9. While some courts have found QWRs inadequate because they related to the creation or modification of a loan, the QWR here requested information that related to “making the payments of principal and interest with respect to the amounts received from the borrower.” 12 U.S.C. § 2605. For example, the QWR requested collection notes concerning the loan, as well as the name and contact information of the entity to which BOA was purportedly making the payments received from Plaintiff. While all of the information requested by Plaintiff may not have been validly sought under the statute, the QWR provided sufficient information concerning several requests for information that should have garnered a response by BOA. See Tamburri v. Suntrust Mortg., Inc., 2011 WL 6294472 at *7 (N.D. Cal. 2011) (noting that QWR requesting documentation supporting collection and enforcement efforts, including documents in support of enforcement of promissory note and deed of trust and a list of assignments “arguably request[ed] information as to how the servicer has handled [plaintiff’s] account”).

While BOA states that it provided a complete response following its initial letter confirming receipt and promising to provide a response, it has not detailed or produced the alleged response.

2. Whether Plaintiff Adequately Pled Damages

Plaintiff may recover for actual damages suffered under 12 U.S.C. § 2605(f)(1)(a). BOA asserts that Plaintiff has failed to plead damages adequately. Generally the requirement for damages has been interpreted liberally. Yulaeva v. Greenpoint Mortg. Funding, Inc., 2009 WL 2880393 at *15 (E.D. Cal. 2009). While Plaintiff does not provide substantial factual support, the allegations are sufficient to state a claim at the pleading stage—Plaintiff has specifically alleged that he sought certain information, BOA denied him his statutorily required information, and the failure to receive that information caused him to pay more than was necessary on his loan and to incur costs in repairing his credit.

G. Violation of 15 U.S.C. § 1692 — Fair Debt Collection Practices Act

The complaint states that BOA violated the FDCPA through making various false representations in its attempt to collect on the loan. The MTD asserts that the FDCPA’s definition of a “debt collector” does not include a mortgage servicer or an assignee of the debt, “where the `debt was not in default at the time it was obtained by [a servicing company].'” MTD at 10 (citing 15 U.S.C. §1692a(6)(F)). Further, it argues that a foreclosure on a property based on a deed of trust does not constitute collection of a debt within the meaning of the FDCPA.

Plaintiff agrees that the statute’s definition of “debt collector” does not include an entity attempting to collect a debt that was not in default when the debt was obtained by that entity. However, he has alleged that BOA took over servicing the debt sometime after September 2009, Compl. ¶ 67, and the debt went into default in May 2008. According to BOA, the default notice was not rescinded until 2011. BOA does not address this issue in its MTD.

BOA also argues that “foreclosure on a property based on a deed of trust does not constitute collection of a debt within the meaning of the FDCPA,” citing Hulse v. Ocwen Federal Bank, FSB, 195 F.Supp.2d 1188, 1204 (D. Or. 2002). In that case, the judge decided that “[f]oreclosing on a trust deed is distinct from the collection of the obligation to pay money . . . . Payment of funds is not the object of the foreclosure action.” Id. First, many courts have registered disagreement with this decision. See, e.g., Albers v. Nationstar Mortg., LLC 2011 WL 43584 (E.D. Wash. 2011) (noting that Hulse’s reasoning has been rejected by the Fourth and Fifth circuits and limited in other circumstances).

Second, as Plaintiff points out, he does not allege that foreclosure of the property constituted the violation; instead, he believes the demands of payment and threats were unlawful. Hulse held that “any actions taken by [defendant] in pursuit of the actual foreclosure may not be challenged as FDCPA violations,” but “plaintiffs may maintain any FDCPA claims based on alleged actions by [defendant] in collecting a debt.” Hulse at 1204. Based on this, even if the court were to accept Hulse’s reasoning, the FDCPA claim survives.

H. Violation of Cal. Bus. & Prof. Code § 17200

Plaintiff alleges that BOA has engaged in unfair, unlawful, and fraudulent business practices by executing misleading documents, executing documents without proper authority to do so, and demanding payments for non-existent debt, among other things.

BOA concedes that violation of another law serves as a predicate for stating a cause of action under § 17200, but states that “Plaintiff must plead facts to support the underlying statutory violation.” MTD at 11. Because the court has upheld Plaintiff’s other claims, the § 17200 claim must be upheld under the unlawful prong. See, e.g., Vogan v. Wells Fargo Bank, N.A., 2011 WL 5826016 at *6-7 (upholding § 17200 claim because court had also upheld claim under Truth in Lending Act, 15 U.S.C. §1641(g)).

I. Accounting

Plaintiff also requests an accounting for all payments made. BOA states that a request for accounting must be tied to another actionable claim, and Plaintiff has no viable claims. BOA also states that Plaintiff has not alleged he is owed a balance.

“A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting.” Tamburri v. Suntrust Mortg., Inc., 2011 WL 6294472 at *17 (N.D. Cal. 2011) (quoting Teselle v. McLoughlin, 173 Cal.App.4th 156, 179 (2009) (also noting that the purpose of requesting an accounting is “to discover what, if any, sums are owed to the plaintiff” and that “an accounting may be used as a discovery device”)).

Further, “[a] request for a legal accounting must be tethered to relevant actionable claims.” Harvey G. Ottovich Revocable Living Trust Dated May 12, 2006 v. Washington Mutual, Inc., 2010 WL 3769459 (N.D. Cal. 2010). While the complaint does not specifically “tether” the request for accounting to another single cause of action, it is clearly based on the same set of circumstances that is the basis for most of the causes of action in this case—the collection of money that was not actually due to Defendants.

Because Plaintiff has pleaded viable claims that are related to the same facts under which he requests an accounting, the court declines to dismiss the accounting claim at this time.

J. Motion to Strike Request for Punitive Damages and Fees

Defendant has made a motion to strike the request for punitive damages, arguing the “complaint is patently insufficient to support” such a claim. Fed. R. Civ. P. 12(f) allows a court to strike an insufficient defense or “any redundant, immaterial, impertinent, or scandalous matter.”

BOA cites to Bureerong v. Uvawas, 922 F.Supp.1450 (C.D. Cal. 1996), which holds that a motion to strike may be used when damages are not recoverable as a matter of law. However, a more recent Ninth Circuit case, Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970 (9th Cir. 2010), held that “Rule 12(f) does not authorize district courts to strike claims for damages on the ground that such claims are precluded as a matter of law.” Id. at 974-75. Thus, without any argument that the claim for punitive damages is redundant, immaterial, impertinent, or scandalous, BOA’s motion cannot succeed.

BOA also asks the court to strike the request for attorney’s fees, claiming there is no contractual or statutory basis for the award. However, as Plaintiff points out, RESPA allows for attorney’s fees. 12 U.S.C. §2605(f)(3) (providing that costs may be recovered “together with any attorneys [sic] fees incurred in connection with such action”).

III. CONCLUSION

For the reasons stated above, the motion to dismiss is DENIED. Defendants’ motion has failed to demonstrate that Plaintiff’s claims were implausible or precluded as a matter of law.

IT IS SO ORDERED.

[1] While Plaintiff does not dispute that he owes money on the loan, he disputes the amount owed and “seeks the Court’s assistance in determining who the holder in due course is of his Note and Deed of Trust.” ¶ 22.

[2] Plaintiff admits he is not a party to or beneficiary of the PSA, but claims that the failure to securitize his note should prevent HSBC and BOA from claiming any interest in the mortgage.

[3] BOA has failed to apply its argument concerning the loan’s securitization to any of Plaintiff’s specific claims, and the court declines to perform this task.

[4] BOA also denies the existence of proximately-caused damages, but does not directly address the alleged damages from derogatory credit reports and excessive interest charges.

[ipaper docId=86890530 access_key=key-1qbfbamphivp774i494b height=600 width=600 /]

image: Housing Wire

HSBC Bank USA, N.A. as Trustee of behalf of ACE Securities Corp. Home Equity Loan Trust And for the Registered Holders of Ace Securities Corp. Home Equity Loan Trust, Series 2007-HE4, Asset Backed Pass-Through Certificates, Plaintiff,

against

Marie Sene, et al, Defendants.

against

Ellen N. Taher, et. al., Defendants.

9320/09

Appearances:

Plaintiff

William G. Kelly, Esq.

Frank Cassara, Esq.

Shapiro DiCaro and Barak, LLC

Rochester NY

Michael O. Ware, Esq.

Mayer Brown, LLP

NY NY

Marco Cercone, Esq.

Ruup Baase Pfalzgraf Cunningham and Coppola

Buffalo NY

Defendant No Appearance

Arthur M. Schack, J.

The following papers numbered 1 – 7 read on this decision:Papers Numbered:

Affidavits with or without Exhibits1, 2, 3, 4

Memoranda of Law_________________________________5, 6

Transcript of July 15, 2011 Court Proceedings____________7

________________________________________________________________________

The Court, in this dismissed foreclosure action, pursuant to 22 NYCRR § 130-1.1 (a), imposes the following sanctions for “frivolous conduct,” in violation of 22 NYCRR

§ 130-1.1 (c): the maximum sanction of $10,000.00 upon plaintiff, HSBC BANK USA, N.A., AS INDENTURE TRUSTEE FOR THE REGISTERED NOTEHOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2007-2 (HSBC), because HSBC’s use of robosigners in the instant action “is completely without merit in law,” HSBC “asserts material factual statements that are false” and HSBC’s continuation of the action with all its defects is a waste of judicial resources; and, a sanction of $5,000.00 upon HSBC’s counsel, Shapiro, DiCaro & Barak, LLC, because Frank M. Cassara, Esq., of Shapiro, DiCaro & Barak, LLC “asserts material factual statements that are false” and Shapiro, DiCaro & Barak, LLC’s continuation of the action with all its defects is a waste of judicial resources. The Court is not imposing a sanction upon Frank M. Cassara, Esq. because, pursuant to 22 NYCRR § 130-1.1 (b), the sanction is imposed upon Shapiro, DiCaro & Barak, LLC, the “firm . . . with which the attorney is associated.”

The frivolous conduct of HSBC and Shapiro, DiCaro & Barak, LLC is detailed in my prior decision and order in this action (32 Misc 3d 1208 (A) [July 1, 2011]). Further, I conducted a hearing on July 15, 2011, to give HSBC, Frank M. Cassara, Esq. and Shapiro, DiCaro & Barak, LLC a “a reasonable opportunity to be heard” before any imposition of sanctions, pursuant to 22 NYCRR § 130-1.1 (d).

This decision and order is based upon my review of the minutes of the July 15, 2011 Part 130 hearing, my prior orders and decisions in the instant matter and my review of affidavits and memoranda of law submitted by counsel for HSBC and Shapiro, DiCaro & Barak, LLC. Therefore, pursuant to 22 NYCRR § 130-1.2, this is the “written decision setting forth the conduct on which the award or imposition [of sanctions] is based, the reasons why the court found the conduct to be frivolous, and the reasons why the court found the amount awarded or imposed to be appropriate.”

Background

Plaintiff HSBC moved in this foreclosure action, upon the default of all defendants, for an order of reference and related relief for the premises located at 931 Gates Avenue, Brooklyn, New York (Block 1632, Lot 57, County of Kings). On November 8, 2010, I issued a decision and order instructing plaintiff’s counsel, Shapiro, DiCaro & Barak, LLC, to comply with the affirmation requirements of Administrative Order 548/10, issued, on October 20, 2010, by then Chief Administrative Judge Ann T. Pfau. Shapiro, DiCaro & Barak, LLC was ordered to submit the required affirmation “within sixty (60) days of this decision and order, or the instant foreclosure action will be dismissed with prejudice.” Moreover, my decision and order mandated, with respect to the attorney’s affirmation, that: [*2]

plaintiff’s counsel to state that he communicated on a specific date

with a named representative of plaintiff HSBC who informed counsel

that he or she:

(a) has personally reviewed plaintiff’s documents and records

relating to this case; (b) has reviewed the Summons and

Complaint, and all other papers filed in this matter in support

of foreclosure; and, (c) has confirmed both the factual accuracy

of these court filings and the accuracy of the notarizations

contained therein.

Further, plaintiff’s counsel, based upon his or her communication

with plaintiff’s representative named above must upon his or her

“inspection of the papers filed with the Court and other diligent

inquiry, . . . certify that, to the best of [his or her] knowledge, information

and belief, the Summons and Complaint filed in support of this action

for foreclosure are complete and accurate in all relevant respect.”

Counsel is reminded that the new standard Court affirmation form

states in a note at the top of the first page:

During and after August 2010, numerous and widespread

insufficiencies in foreclosure filings in various courts around the

nation were reported by major mortgage lenders and other authorities.

These insufficiencies include: failure of plaintiffs and their counsel

to review documents and files to establish standing and other foreclosure requisites; filing of notarized affidavits which falsely attest to such

review and to other critical facts in the foreclosure process; and

“robosigning” of documents by parties and counsel. The wrongful

filing and prosecution of foreclosure proceedings which are discovered

to suffer from these defects may be cause for disciplinary and other

sanctions upon participating counsel. [Emphasis added]

The Office of Court Administration, in its October 20, 2010 press release about the

new affirmation requirement, stated that the new attorney affirmation filing requirement was instituted:

to protect the integrity of the foreclosure process and prevent wrongful foreclosures . . . The new filing requirement was introduced by the Chief [*3]

Judge in response to recent disclosures by major mortgage lenders of

significant insufficiencies — including widespread deficiencies in

notarization and “robosigning” of supporting documents — in residential

foreclosure filings in courts nationwide . . .

Chief Judge Lippman said, “We cannot allow the courts

in New York State to stand by idly and be party to what we now

know is a deeply flawed process, especially when that process

involves basic human needs — such as a family home — during

this period of economic crisis. This new filing requirement will

play a vital role in ensuring that the documents judges rely on will

be thoroughly examined, accurate, and error-free before any judge

is asked to take the drastic step of foreclosure.” [Emphasis added]

On January 7, 2011, HSBC’s deadline day to submit the required affirmation, Mr.

Cassara, of Shapiro, DiCaro & Barak, LLC, submitted to my chambers the required affirmation. Mr. Cassara, affirmed “under the penalties of perjury”:

2. On January 4, 2011 and January 5, 2011, I communicated with

the following representative or representatives of Plaintiff, who informed

me that he/she/they (a) personally reviewed plaintiff’s documents and

records relating to this case for factual accuracy; and (b) confirmed

the factual accuracy and allegations set forth in the Complaint and

any supporting affirmations filed with the Court, as well as the accuracy

of the notarizations contained in the supporting documents filed there with.

Name Title

Christina Carter Manager of Account Management

3. Based upon my communication with Christina Carter, as well

as upon my inspection and reasonable inquiry under the circumstances,

I affirm that, to the best of my knowledge, information, and belief, the

Summons and Complaint, and other papers filed or submitted to the

Court in this matter contain no false statements of fact or law . . .

4. I am aware of my obligations under New York Rules of Professional

Conduct (22 NYCRR Part 1200) and 22 NYCRR Part 130. [Emphasis [*4]

added]

However, the Court discovered problems with Mr. Cassara’s affirmation and the subject foreclosure action. Plaintiff HSBC lacked standing to commence the instant foreclosure action because the assignment to HSBC of the subject mortgage and note by MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. (MERS) was without legal authority. MERS never possessed the TAHER note it allegedly assigned to plaintiff HSBC. Therefore, the Court dismissed the instant action with prejudice because HSBC did not have standing to commence the action.

Then, I held at * 2-3, of my July 1, 2011 decision and order:

Mr. Cassara’s affirmation, affirmed “under the penalties of

perjury,” that to the best of Mr. Cassara’s “knowledge, information,

and belief, the Summons and Complaint, and other papers filed or

submitted to the Court in this matter contain no false statements of

fact or law,” is patently false. Moreover, the Court is troubled that:

the alleged representative of plaintiff HSBC, Christina Carter, who

according to Mr. Cassara, “confirmed the factual accuracy and

allegations set forth in the Complaint and any supporting affirmations

filed with the Court, as well as the accuracy of the notarizations

contained in the supporting documents filed therewith,“is not an

employee of HSBC, but a robosigner employed by OCWEN LOAN

SERVICING, LLC [OCWEN], whose signature on legal documents

has at least three variations; the MERS to plaintiff HSBC assignment

of the subject mortgage and note was executed by Scott W. Anderson,

a known robosigner and OCWEN employee, whose signature is

reported to have appeared in at least four different variations on

mortgage assignments; and, the instant affidavit of merit was executed

by Margery Rotundo, another robosigner, OCWEN employee and self-

alleged employee of various other banking entities . . .

Last month, on May 19, 2011, in a case involving a defective

MERS to HSBC assignment by a robosigner, Maine’s highest court,

the Supreme Judicial Court, found that HSBC’s affidavits and the

assignment of the note and mortgage by MERS to HSBC contained

serious defects. The Maine Court held “that the affidavits submitted [*5]

by HSBC contain serious irregularities that make them inherently

untrustworthy.” (HSBC Mortg. Services, Inc. v Murphy, 19 A3d 815,

820). HSBC has a history of foreclosure actions before me with

affidavits of merit executed by Margery Rotundo and MERS to

HSBC assignments executed by Scott Anderson that “contain serious

irregularities that make them inherently untrustworthy.” Moreover,

Mr. Cassara was put on notice, in my November 8, 2010 decision and

order, that “[t]he wrongful filing and prosecution of foreclosure

proceedings which are discovered to suffer from these defects may

be cause for disciplinary and other sanctions upon participating counsel.”

Moreover, in my July 1, 2011 decision and order, at * 3, I emphasized to plaintiff HSBC’s counsel that:

Chief Judge Jonathan Lippman, in the Office of Court

Administration’s October 20, 2010 press release about the issuance of

Administrative Order 548/10 and the need for plaintiff’s counsel in

foreclosure actions to verify the accuracy of supporting documents,

stated that “[w]e cannot allow the courts in New York State to stand by

idly and be party to what we now know is a deeply flawed process,

especially when that process involves basic human needs — such as

a family home — during this period of economic crisis.” Frivolous

conduct, as defined by 22 NYCRR § 130.1.1 (c), includes conduct that

“is completely without merit in law” and “asserts material factual

statements that are false.” Further, the Part 130 rules are intended to

stop the waste of judicial resources, which appears to have occurred in

the TAHER foreclosure action. In the instant action: the assignment of

the subject mortgage and note by MERS to HSBC is without legal

authority; HSBC’s continued use of robo-signers “is completely without

merit in law”; plaintiff HSBC “asserts material factual statements that

are false”; and, the continuation of this case with all its defects is a

waste of judicial resources. Therefore, plaintiff HSBC’s President and

Chief Executive Officer, Irene M. Dorner, its counsel, Frank M. Cassara, [*6]

Esq., and his firm, Shapiro, DiCaro & Barak, LLC, will be given an

opportunity to be heard why this Court should not sanction them for

making a “frivolous motion,” pursuant to 22 NYCRR §130-1.1.

In my July 1, 2011 decision and order, I found that defendant TAHER’s lender, DELTA FUNDING CORPORATION (DELTA), pursuant to the terms of a consolidation, extension and modification agreement, not MERS, was the “Note Holder.” Despite this, MERS assigned DELTA’s consolidation, extension and modification agreement and note to HSBC, in an assignment executed by Scott W. Anderson, as “Senior Vice President of Residential Loan Servicing” for “MORTGAGE ELECTRONIC REGISTRATIONS SYSTEMS, INC., as nominee for DELTA FUNDING CORPORATION by its attorney-in-fact OCWEN LOAN SERVING, LLC.” I noted that both assignor MERS and assignee HSBC have the same address, 1661 Worthington Road, Suite 100, West Palm Beach, FL 33409, which is OCWEN’s address. Also, Mr.

Anderson’s assignment referred to a recorded power of attorney from DELTA to OCWEN, which upon my inspection proved to be a limited power of attorney from DELTA to OCWEN for a different address.

With respect to robosigner Scott Anderson, I observed in my July 1, 2011 decision and order, at * 5, that:

the Ohio Court of Appeals, Second District, Montgomery County

(2010 WL 3451130, 2010-Ohio-4158, lv denied 17 Ohio St.3d 1532

[2011]), affirmed the denial of a foreclosure, sought by plaintiff

HSBC, because of numerous irregularities. The Ohio Court, in

citing four decisions by this Court [three of the four involved Scott

Anderson as assignor] summarized some of this Court’s prior concerns

with HSBC and Mr. Anderson, in observing, at * 11:

recent decisions in the State of New York have noted numerous

irregularities in HSBC’s mortgage documentation and corporate

relationships with Ocwen, MERS, and Delta. See, e.g., HSBC

Bank USA, N.A. v Cherry (2007), 18 Misc 3d 1102 (A) [Scott

Anderson assignor] and HSBC Bank USA, N.A. v Yeasmin

(2010), 27 Misc 3d 1227 (A) (dismissing HSBC’s requests for

orders of reference in mortgage foreclosure actions, due to

HSBC’s failure to provide proper affidavits). See, also, e.g.,

HSBC Bank USA, N.A. v Charlevagne (2008), 20 Misc 3d

1128 (A) [Scott Anderson assignor] and HSBC Bank USA,

N.A. v Antrobus (2008), 20 Misc 3d 1127 (A) [Scott Anderson

assignor] (describing “possible incestuous relationship” between

HSBC Bank, Ocwen Loan Servicing, Delta Funding Corporation, [*7]

and Mortgage Electronic Registration Systems, Inc., due to the fact

that the entities all share the same office space at 1661 Worthington

Road, Suite 100, West Palm Beach, Florida. HSBC also supplied

affidavits in support of foreclosure from individuals who

claimed simultaneously to be officers of more than one of these corporations.).

I reviewed Scott Anderson’s signature in the instant MERS to HSBC assignment and then went to the Automated City Register Information System (ACRIS) of the New York City Register to compare Mr. Anderson’s signature with that used in five prior Scott Anderson foreclosure cases decided by this Court. I found that Mr. Anderson used five variations of his initials, “SA,” but never signed his name in full.

Also, I found that Margery Rotundo, who executed the April 27, 2009 affidavit of merit and amount due in the instant action, at * 7 of my July 1, 2011 decision and order, had “in prior foreclosure cases before me, a history of alleging to be the Senior Vice President of various entities, including plaintiff HSBC, Nomura Credit & Capital, Inc. and an unnamed servicing agent for HSBC. In the instant action she claims to be the Senior Vice President of Residential Loss Mitigation of OCWEN, HSBC’s servicing agent.”

Then, with respect to Christina Carter, at * 8 of my July 1, 2011 decision and order, I observed:

Mr. Cassara, plaintiff’s counsel affirmed that “On January 4,

2011 and January 5, 2011, I communicated with the following

representative . . . of Plaintiff . . . Christina Carter . . . Manager of

Account Management.” This is disingenuous. Ms. Carter is not

employed by plaintiff, but by OCWEN. She executed documents as

an officer of MERS and as an employee of OCWEN. Ms. Carter’s

signature on documents is suspect because of the variations of her

signature used.

This Court examined eight recent documents that exhibit

three different variations of Christina Carter’s signature.

In my July 1, 2011 decision and order, I explained in detail why HSBC failed to have standing to assign the subject mortgage and note, holding at * 10, that “[i]n the instant action, even if MERS had authority to transfer the mortgage to HSBC, DELTA, not MERS, is the note holder. Therefore, MERS cannot transfer something it never proved it possessed.” I cited Aurora Loan Services, LLC v Weisblum (85 AD3d 95, 108 [2d Dept May 14, 2011]), which holds:

In order to commence a foreclosure action, the plaintiff must

have a legal or equitable interest in the mortgage (see Wells Fargo

Bank, N.A. v Marchione, 69 AD3d, 204, 207 [2d Dept 2009]). A

plaintiff has standing where it is both (1) the holder or assignee of

the subject mortgage and (2) the holder or assignee of the underlying

note, either by physical delivery or execution of a written assignment

prior to the commencement of the action with the filing of the complaint

(see Wells Fargo Bank, N.A. v Marchione, 69 AD3d at 207-209; U.S. [*8]

Bank v Collymore, 68 AD3d 752, 754 [2d Dept 2009].)

Moreover, in my July 1, 2011 decision and order, with respect to the authority of MERS as nominee to assign a mortgage and note, I held, at * 10:

Scott Anderson for MERS as assignor, did not have specific

authority to sign the TAHER mortgage. Under the terms of the

consolidation, extension and modification agreement, MERS is

“acting solely as nominee for Lender [DELTA].” The alleged power

of attorney cited in the Scott Anderson MERS to HSBC assignment,

as described above, is a limited power of attorney from DELTA to

OCWEN for the premises located at 14 Harden Street, Brooklyn,

New York, not the subject premises. MERS is not mentioned or

involved with this limited power of attorney. In both underlying

TAHER mortgages MERS was “acting solely as a nominee for

Lender,” which is DELTA. The term “nominee” is defined as “[a]

person designated to act in place of another, usu. in a very limited

way” or “[a] party who holds bare legal title for the benefit of others.”

(Black’s Law Dictionary 1076 [8th ed 2004]). “This definition suggests

that a nominee possesses few or no legally enforceable rights beyond

those of a principal whom the nominee serves.” (Landmark National Bank v Kesler, 289 Kan 528, 538 [2009]).

Then, I held, at * 12-13 of my July 1, 2011 decision and order, that MERS, as DELTA’s nominee, its agent for limited purposes, lacked authority to assign the TAHER consolidation, extension and modification agreement, because:

several weeks ago, the Appellate Division, Second Department in

Bank of New York v Silverberg, (86 AD3d 274 [June 7, 2011]),

confronted the issue of “whether a party has standing to commence

a foreclosure action when that party’s assignor—in this case, Mortgage

Electronic Registration Systems, Inc. (hereinafter MERS)—was listed

in the underlying mortgage instruments as a nominee and mortgagee

for the purpose of recording, but was never the actual holder or

assignee of the underlying notes.” The Court held, “[w]e answer

this question in the negative.” Silverberg, similar to the instant [*9]

TAHER matter, deals with the foreclosure of a mortgage with a

consolidation, modification and extension agreement. MERS, in

the Silverberg case and the instant TAHER action, never had title

or possession of the Note and the definition of “Note Holder” is

substantially the same in both consolidation, extension and modification agreements. The Silverberg Court instructed, at 281-282:

the assignment of the notes was thus beyond MERS’s authority

as nominee or agent of the lender (see Aurora Loan Servs.,

LLC v Weisblum, 2011 NY Slip Op 04184, *6-7 [2d Dept

2011]; HSBC Bank USA v Squitteri, 29 Misc 3d 1225 [A]

[Sup Ct, Kings County, F. Rivera, J.]; ; LNV Corp. v Madison

Real Estate, LLC, 2010 NY Slip Op 33376 [U] [Sup Ct, New

York County 2010, York, J.]; LPP Mtge. Ltd. v Sabine Props.,

LLC, 2010 NY Slip Op 32367 [U] [Sup Ct, New York County

2010, Madden, J.]; Bank of NY v Mulligan, 28 Misc 3d 1226 [A]

[Sup Ct, Kings County 2010, Schack, J.]; One West Bank,

F.S.B., v Drayton, 29 Misc 3d 1021[Sup Ct, Kings County

2010, Schack, J.]; Bank of NY v Alderazi, 28 Misc 3d 376,

379-380 [Sup Ct, Kings County 2010, Saitta, J.] [the “party

who claims to be the agent of another bears the burden of

proving the agency relationship by a preponderance of the

evidence”]; HSBC Bank USA v Yeasmin, 24 Misc 3d 1239 [A]

[Sup Ct, Kings County 2010, Schack, J.]; HSBC Bank USA,

N.A. v Vasquez, 24 Misc 3d 1239 [A], [Sup Ct, Kings County

2009, Schack, J.]; Bank of NY v Trezza, 14 Misc 3d 1201 [A]

[Sup Ct, Suffolk County 2006, Mayer, J.]; La Salle Bank Natl.

Assn. v Lamy, 12 Misc 3d 1191 [A] [Sup Ct, Suffolk County,

2006, Burke, J.]; Matter of Agard, 444 BR 231 [Bankruptcy

Court, ED NY 2011, Grossman, J.]; but see U.S. Bank N.A. v

Flynn, 27 Misc 3d 802 [Sup Ct, Suffolk County 2011, Whelan,

J.]).

Moreover, the Silverberg Court concluded, at 283, that “because [*10]

MERS was never the lawful holder or assignee of the notes described

and identified in the consolidation agreement, the . . . assignment of

mortgage is a nullity, and MERS was without authority to assign the

power to foreclose to the plaintiff. Consequently, the plaintiff failed

to show that it had standing to foreclose.” Further, the Silverberg

Court observed, at 283, “the law must not yield to expediency and

the convenience of lending institutions. Proper procedures must

be followed to ensure the reliability of the chain of ownership, to secure

the dependable transfer of property, and to assure the enforcement of

the rules that govern real property.” [Emphasis added]

Therefore, the instant action is dismissed with prejudice.

Thus, because of: the defects found in Mr. Cassara’s January 6, 2011 affirmation,

affirmed, “under the penalties of perjury”; the warning to plaintiff’s counsel that “[t]he wrongful filing and prosecution of foreclosure proceedings which are discovered to suffer from these defects may be cause for disciplinary and other sanctions upon participating counsel”; plaintiff HSBC’s lack of standing to bring the instant action; plaintiff HSBC’s complaint being replete with false statements, such as alleging its offices were located at 1661 Worthington Road, Suite 100, West Palm Beach, FL 33409, which is actually OCWEN’s office, and that it owned the TAHER note, which it did not; the use in the instant foreclosure of three robosigners – Scott Anderson, Margery Rotundo and Christina Carter; and, the waste of judicial resources, in this matter, with defective paperwork and robosigners; I ordered, at * 17, of my July 1, 2011 decision and order, that:

the Court will examine the conduct of plaintiff HSBC and plaintiff’s

counsel, in a hearing, pursuant to 22 NYCRR § 130-1.1, to determine

if plaintiff HSBC, by its President and CEO, Irene M. Dorner, and

plaintiff’s counsel Frank M. Cassara, Esq. and his firm Shapiro, DiCaro

& Barak, LLC, engaged in frivolous conduct, and to allow plaintiff

HSBC, by its President and CEO, Irene M. Dorner, and plaintiff’s

counsel Frank M. Cassara, Esq. and his firm Shapiro, DiCaro &

Barak, LLC a reasonable opportunity to be heard.

With respect to HSBC’s President and CEO, Irene M. Dorner, I noted, at * 17 of my July 1, 2011 decision and order:

plaintiff HSBC’s President and Chief Executive Officer (CEO)

bears a measure of responsibility for plaintiff’s actions, as well as

plaintiff’s counsel . . . Dorner . . . is HSBC’s “captain of the ship.”

She should not only take credit for the fruits of HSBC’s victories but

must bear some responsibility for its defeats and mistakes. According

to HSBC’s 2010 Form 10-K, dated December 31, 2010, and filed with

the U.S. Securities and Exchange Commission on February 28, 2011, [*11]

at p. 255, “Ms. Dorner’s insight and particular knowledge of HSBC

USA’s operations are critical to an effective Board of Directors” and

Ms. Dorner “has many years of experience in leadership positions

with HSBC and extensive global experience with HSBC, which is

highly relevant as we seek to operate our core businesses in support

of HSBC’s global strategy.” HSBC needs to have a “global strategy”

of filing truthful documents and not wasting the very limited resources

of the Courts. For her responsibility she earns a handsome compensation

package. According to the 2010 Form 10-K, at pp. 276-277, she earned

in 2010 total compensation of $2,306,723. This included, among other

things: a base salary of $566,346; a discretionary bonus of $760,417;

and, other compensation such as $560 for financial planning and

executive tax services; $40,637 for executive travel allowance,

$24,195 for housing and furniture allowance, $39,399 for relocation

expenses and $3,754 for executive physical and medical expenses.

OCWEN, as attorney-in-fact for HSBC, on July 12, 2011, substituted Ruppe, Baase, Pfalzgraf, Cunningham, Coppola, LLC for Shapiro, DiCaro & Barak, LLC, as counsel for HSBC. Ruppe, Baase, Pfalzgraf, Cunningham, Coppola, LLC submitted to the Court papers opposing sanctions against HSBC.

However, it appears to the Court that HSBC was never notified by OCWEN or Ruppe, Baase, Pfalzgraf, Cunningham, Coppola, LLC that they were being represented at the July 15, 2011 hearing. On July 15, 2011, at about 12:40 P.M., less than two hours before the sanctions hearing was scheduled to commence, a messenger from the “white-shoe” law firm Mayer Brown, LLP delivered to my chambers, an affidavit, with exhibits, executed that day by Thomas Musarra, alleging to be “a senior vice president of HSBC Bank USA” and “the head of HSBC’s Corporate Trust and Loan Agency Transaction Management Department, the unit responsible for HSBC’s work as trustee or indenture trustee in residential mortgage-backed securities transactions.” Mr. Mussara “being duly sworn” states, in ¶ 4, of his affidavit that “[m]y department has no record of the loan to defendant Eileen Taher being brought to our attention by the Servicer [OCWEN] or otherwise until last week.” Michael Ware, Esq., of Mayer Brown, LLP, in his Memorandum of Law, attached to the Musarra affidavit, claims that his Memorandum of Law was submitted for HSBC and Irene M. Dorner “in its corporate capacity and not as Indenture Trustee for the Registered Noteholders of Renaissance Home Equity Loan Trust 2007-2.”

However, Mayer Brown, LLP, pursuant to CPLR § 1013, never moved by motion to intervene in the instant action for HSBC “in its corporate capacity and not as Indenture Trustee for the Registered Noteholders of Renaissance Home Equity Loan Trust 2007-2,” if that is even possible. The poet Gertrude Stein wrote in Sacred Emily that a “Rose is a rose is a rose is a rose” and William Shakespeare wrote in Romeo and Juliet that “A rose by any other name would smell as sweet.” HSBC, whether in its corporate capacity or as an Indenture Trustee, is HSBC, whether it smells sweet or otherwise. Therefore, HSBC is HSBC is HSBC is HSBC.

Goldberg Segalla, LLP represented Shapiro, DiCaro & Barak, LLC and Frank M. Cassara, [*12]Esq. at the July 15, 2011 hearing. John A. DiCaro, Esq., a member of Shapiro, DiCaro & Barak, LLC, submitted an affidavit and memorandum of law opposing sanctions.

Plaintiff HSBC’s various counsel and Shapiro, DiCaro & Barak, LLC, in their opposition affidavits and memoranda of law, devote most of their opposition to my rationale for the July 1, 2011 decision and order, dismissing the instant action with prejudice and ordering a Part 130 sanctions hearing. I will not engage in debate with counsel for HSBC or Shapiro, DiCaro & Barak, LLC about my reasoning in the July 1, 2011 decision and order. As of today, neither HSBC’s counsel, whether it is Ruppe, Baase, Pfalzgraf, Cunningham, Coppola, LLC or Mayer Brown, LLP, nor Shapiro, DiCaro & Barak, LLC have moved for leave to renew or reargue my July 1, 2011 decision and order or file a notice of appeal. If HSBC’s various counsel and/or Shapiro, DiCaro & Barak, LLC dispute any part of my July 1, 2011 decision and order, why are they sitting on their hands?

Further, as indicated by the Musarra affidavit and the Michael Ware Memorandum of Law, HSBC sounds like a combination of Pontius Pilate and Sergeant Schultz in the classic 1960’s television comedy, Hogan’s Heroes. HSBC washes its hands of any responsibility and places any blame upon OCWEN, its servicer for the TAHER mortgage. To paraphrase Matthew 27:24, in the New Testament, “when HSBC saw that it could prevail nothing, but that rather a tumult was made, it took water, and washed its hands before the multitude, saying, ‘I am innocent of responsibility and should not be sanctioned.'” John Banner, the actor who played the inept Sergeant Hans Schultz, a guard in World War II’s Stalag 13, would feign ignorance about the escapades of his Allied prisoners by telling his commandant, Colonel Klink, “I know nothing! Nothing!”Moreover, Mr. Ware, in his Memorandum of Law, at page 3, states that “[t]he

administration of mortgage loans owned by the Trust is Ocwen’s responsibility under the Servicing Agreement reproduced as Musarra Ex. B” and “[g]iven the respective responsibilities of the Indenture Trustee and the Servicer, it is no suprise that the Taher loan never came to the attention of the relevant department of HSBC until after the July 1 Order became public.” Mr. Ware, concludes, at page 5, “[I]f sanctionable misconduct took place here, the Court should bear in mind that neither HSBC nor Dorner was in any practical position to control the prosecution of this action.”

July 15, 2011 Part 130 hearing for costs and sanctions

The first issue I had to address at the July 15, 2011 Part 130 hearing was determining who represented HSBC. Marco Cercone, Esq. of Ruppe, Baase, Pfalzgraf, Cunningham, Coppola, LLC answered for HSBC and satisfactorily explained to my satisfaction that OCWEN’s Assistant General Counsel substituted Ruppe, Baase, Pfalzgraf, Cunningham, Coppola, LLC for Shapiro DiCaro & Barak, LLC, pursuant to a power of attorney from HSBC to OCWEN. I then addressed Mr. Ware, and asked him how he could represent HSBC, if Mr. Cercone represented HSBC. Mr. Ware attempted to make a distinction between HSBC as an indenture trustee and in its corporate capacity. The following colloquy took place at the hearing, p. 7, line 19 – p. 10, line [*13]22:

THE COURT: Wouldn’t you have to file for intervener

status by motion?

MR. WARE: Certainly. We read the order of July 1st as making

Irene Dorner a respondent at today’s hearing.

THE COURT: . . . I ordered Ms. Dorner to appear because she’s

the President and CEO of HSBC USA, N.A. as indenture trustee.

Whatever you call it, she’s the head of HSBC. We could agree on that?

MR. WARE: Yes.

THE COURT: She’s the President and CEO of HSBC USA.

They’re the indenture trustee. That’s what the caption said. As I

said in my decision, in effect, to look at HSBC as a firm. She’s the

captain of the ship. She has to take responsibility for the good and

bad, like the manager of a baseball team. If HSBC is a baseball

team, if the team wins, you get a lot more money, a lot of aggravation.

Your team come in last, you get fired, you’re gone, you’re history,

adios. That’s what she has to bear here.

Because I have problems here with this case, and I want to get

to the bottom of what happened, I haven’t made any rulings. I didn’t

say there should be sanctions. I want to give everybody a chance to

be heard it there’s sanctionable conduct here. That’s how my order

appears. So based on that, I know Mr. Cercone represents her. Since

now her attorney-in-fact is now substituting his firm for Shapiro and

DiCaro, and you’re suddenly telling me that they don’t represent Irene

Dorner, HSBC, fascinating.

So, who represents HSBC, your or him? I don’t know. Basically,

right now he does. He just proved to me he has a power of attorney.

So the only thing I could think of, if I can split that hair and allow you

to intervene on behalf of – – what I’ll call corporate HSBC, as opposed

to indenture trustee HSBC, is that you have to file a motion on papers,

which you have not. [*14]

MR. WARE: Well, I certainly appear, your Honor, for Ms. Dorner.

THE COURT: Well, I’ll cut through the chase because I read your

papers. For argument’s sake, let’s play this out to the end. Suppose I find

that HSBC did something that requires sanctions? Dismiss as a party?

I know Ms. Dorner is the President and CEO, not an individual. I know

I can’t sanction Ms. Dorner. If that’s what the company is, it’s HSBC

that I might be able to sanction, not Ms. Dorner as an individual. I’ll

grant you that much.

Now that we’ve got Ms. Dorner protected as an individual, but

not HSBC, how are you here in the case? You didn’t file to intervene.

Unless you pull a rabbit out of your hat, in about a moment, I am going

to ask you to leave.

You’re going to stay in the room, obviously. This is a public

courtroom, but I don’t see how you can sit at the table. You’re not in

the case. HSBC, is it your firm or Mr. Cercone’s firm? If you

want to confer with him, I’ll allow you a moment to confer with him.

It’s up to you.

MR. WARE: The foreclosure is entrusted to the servicer. Ocwen

as the servicer is entitled to control the action that is now dismissed.

THE COURT: Okay.

MR. WARE: So we’re here in the aftermath of the dismissal of

the action to address the issues in the order of July 1st.

THE COURT: To use your term aftermath, in the aftermath,

doesn’t Mr. Cercone speak for HSBC since they’re the parties in the

aftermath as indenture trustee, or are you telling me he doesn’t represent

HSBC, you do? Who represents HSBC or is this going to be – – let’s

throw Ocwen under the bus because we didn’t do anything. That seems

to be the defense.

The defense is we didn’t do anything. Ocwen did it. That’s

what you’re telling me.

MR. WARE: Well, it’s certainly true, as a matter of fact, your

Honor, that – – [*15]

THE COURT: That’s what you say.

Ultimately, I allowed Mr. Ware to sit in the well next to Mr. Cercone and act as his co-counsel, but not to intervene in the case, since “corporate” HSBC did not make a motion on notice to intervene. This was done after the following exchange, at p. 11, line 9 – p. 12, line 20.

THE COURT: But here’s the problem. HSBC’s name is in the

caption. They’re the Plaintiff as indenture trustee, et cetera. So now I

find there’s a question about what occurred in this particular case in

terms of whether or not there’s something that is sanctionable.

The question is somebody has to represent HSBC. Mr. Cercone

has been substituted for Shapiro and DiCaro. He showed me the power

of attorney as I asked him to do. You magically appear.

Somebody gives these papers to me at 12:40 this afternoon, and

you say Mayer Brown, LLP is the attorney for HSBC in its corporate

capacity and not as an indenture trustee, but nowhere in the caption did

I see HSBC in its corporate capacity as a party. Therefore, you’re

attempting to intervene without making a motion.

MR. WARE: I understand you’re point, your Honor. Let me

make one point on it and then a suggestion, which is that we thought

the reading of the order of July 1st is that the bank’s assets were

imperiled by this order.

THE COURT: Imperiled. You know HSBC is a corporation.

They can afford to pay Ms. Dorner $2.3 million a year without blinking

an eyelash. What’s the worst that Judge Schack can do? Sanction them?

What’s the worst I can sanction the bank? $10,000. I don’t think it’s

going to affect the bottom line too much.

Right now . . . HSBC will not file for chapter 11 because of

whatever I do one way or the other.

MR. WARE: HSBC didn’t even get touched, your Honor.

THE COURT: I’m glad to hear that.

MR. WARE: I would be happy to be of counsel to him [Mr.

Cercone] with him as trial counsel and counsel of record for HSBC Bank.

With HSBC’s representation finally resolved, the Court inquired about HSBC’s missing President and CEO, Irene M. Dorner, who was ordered, in my July 1, 2011 decision and order, to [*16]appear for the Part 130 hearing. The following colloquy took place, at p. 15, line 1 – p. 16, line 2:

THE COURT: Now we come to why I brought everybody here.

Let me ask Mr. Cercone a question. I have obviously counsel here, Mr.

Cassara, and we have Shapiro DiCaro and Barak. You’re producing

Ms. Dorner on behalf of HSBC?

MR. CERCONE: I am not, Judge. She’s out of the country;

she’s unavailable.

THE COURT: Where out of the country?

MR. CERCONE: I do not know.

THE COURT: You don’t communicate with your client?

MR. CERCONE: I have not communicated with Ms. Dorner.

THE COURT: Maybe you can whisper in his [Mr. Ware, seated

next to Mr. Cercone] ear, and he can whisper something to you. Maybe

he knows where she is.

MR. CERCONE: She’s aware, and she appeared by counsel.

THE COURT: She’s aware. Is she away or on the lam? Where

is she? She’s not here.

MR. CERCONE: She’s not here, Judge.

THE COURT: Why is she violating the court order?

MR. CERCONE: I don’t believe she’s violating the court order,

Judge, because she’s here by counsel.

THE COURT: That’s your opinion for the moment.

Then, the Court reviewed the factual history of the case, including: the use of robosigners Christina Carter and Scott Anderson; HSBC’s lack of standing with the ineffective MERS to HSBC assignment; and, HSBC’s admission, in a prior case before me, HSBC Bank USA v Yeasmin, 24 Misc 3d 1239 (A), that HSBC doesn’t properly determine risk when buying mortgage loans in default. I then made the following statement, at p. 20, line 19 – p. 21, line 16:

Why do I have to waste my time on this? You know we have very

limited resources in our court system. You saw it today. We had to

wait to get a court officer. We probably have 25 less court officers in

this building now, approximately. I don’t know the number we had last

year at this time.

Between buy-outs, people retired, layoffs, the government and [*17]

legislative cuts, the Court’s budget, we have to cut off trials at 4:30, but

the workload increases. So we’re busy. I would like to have serious

cases that have serious issues to deal with rather than deal with these

things which are ridiculous. But I have to deal with this foreclosure.

I have to deal with what is in front of me.

That’s why I have a question of whether or not the conduct that

occurred here . . . is sanctionable, whether it be by HSBC or its attorneys.

That’s why I called for this hearing. So my first question would be with

respect to Shapiro and DiCaro, and Mr. Cassara. My question is, how

could I get an affirmation on whether everything is accurate when it’s not?

Mr. Cassara was sworn in a witness and questioned by his counsel. After his attorney asked questions, I then inquired about HSBC’s use of robosigners, Scott Anderson, Margery Rotundo and Christina Carter. The following exchange took place at p. 25, line 11 – p. 28, line 2:

THE COURT: You gave me an affirmation, as I mentioned, dated

January 6, 2011, and you say you spoke to a representative of Plaintiff.

How come you didn’t say she worked for Ocwen?

THE WITNESS: To be honest with you, Your Honor, when

the word representative of the Plaintiff – – Ocwen is their authorized

agent to handle their loan servicing , and I believed, and I still believe

that representative meant someone who represents – –

THE COURT: Don’t you think it would be helpful for the Court

when you put her name in here [the Affirmation] if it said Manager of

Account Management for Ocwen Loan Servicing as servicer or something

to that effect?

THE WITNESS: Now, yes, your Honor. Now I believe if the

Court would have inquired, I would have indicated such, to be honest

with you. At the time, and I still do believe, the word representative

meant the servicing agent or any party – –

THE COURT: Put the Court to the side for a moment. Somebody

is the reader of this affirmation. And they see the name Christina Carter

is the person you spoke to and communicated with. It says, “Manager of

Account Management.”

Wouldn’t somebody assume she’s employed by HSBC, not [*18]

another entity?

THE WITNESS: To be honest with you, your Honor, I believe

that a representative of the Plaintiff was the servicer. There was no

intent to deceive, certainly – –

THE COURT: Doesn’t it sort of fog the issue or create some

confusion that she does not work for HSBC?

THE WITNESS: Your Honor, I believe she was a representative

of the Plaintiff, that’s sincere.

THE COURT: Then you say everything is accurate. . . the assignor

has the same address as the assignee.

That’s a little bizarre, or try it another way. Scott Anderson, how

does he become both the assignor and the assignee?

THE WITNESS: I’m sorry, your Honor – –

THE COURT: Scott Anderson is the alleged Vice President of

MERS. Are you aware that he is employed by Ocwen?

THE WITNESS: Yes.

THE COURT: And he’s the assignor. Who is the assignee of

Ocwen? Isn’t he conflicted?

THE WITNESS: I’m not following.

THE COURT: Scott Anderson is not conflicted?

THE WITNESS: Your Honor, I believe – –

THE COURT: You believe he is?

THE WITNESS: I don’t know the answer.

THE COURT: Better speak up. That’s one question. Margery

Rotundo signed the affidavit of merit. You’re aware of the fact that

she wears three or four different corporate hats in cases before me?

THE WITNESS: I was not aware or do not recall it was.

THE COURT: And then you’ve got Christina Carter who wears

many hats. This woman you spoke to, are you aware of that also?

THE WITNESS: I was not aware of that as well.

THE COURT: So you’re not aware of that?

THE WITNESS: Okay. [*19]

After further attempts by counsel for HSBC and Shapiro, DiCaro & Barak, LLC to argue about the rationale for my July 1, 2011 decision and order, I concluded the hearing and reserved decision.

22 NYCRR § 130-1.1 (a) allows the Court, in its discretion, to “impose financial

sanctions upon any party or attorney in a civil action or proceeding who engages in frivolous conduct as defined in this Part, which shall be payable as provided in section 130-1.3 of this Part.” 22 NYCRR § 130-1.1 (c) states that:

conduct is frivolous if: (1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law;

(2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or

(3) it asserts material factual statements that are false.

Conduct is frivolous and can be sanctioned under the above court rule if “it is completely without merit . . . and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law.” (Gordon v Marrone, 202 AD2d 104, 110 [2d Dept 1994] lv denied 84 NY2d 813 [1995]). (See RKO Properties v Boymelgreen, 77 AD3d 721 [2d Dept 2010]; Finkelman v SBRE, LLC, 71 AD3d 1081 [2d Dept 2010]; Glenn v Annunziata, 53 AD3d 565 [2d Dept July 15, 2008]; Miller v Dugan, 27 AD3d 429 [2d Dept 2006]; Greene v Doral Conference Center Associates, 18 AD3d 429 [2d Dept 2005]; Ofman v Campos, 12 AD3d 581 [2d Dept 2006]).

In determining if sanctions are appropriate, the Court must look at the broad pattern of conduct by the offending attorneys or parties. (Levy v Carol Management Corporation, 260 AD2d 27 [1d Dept 1999]). The Levy Court, at 33, held that, “22

NYCRR 130-1.1 allows us to exercise our discretion to impose costs and sanctions on an errant party under circumstances particularly applicable here. The relief may include, inter alia, sanctions against the offending party or its attorney (22 NYCRR 130-1.1 [1]) in an amount to be determined by us, which we would make payable to the Lawyers’ Fund for Client Protection (22 NYCRR 130-1.3)” Further, the Levy Court instructed, at 34, that “[s]anctions are retributive, in that they punish past conduct. They also are goal oriented, in that they are useful in deterring future frivolous conduct not only by the particular parties, but also by the Bar at large.” The Court, in Kernisan, M.D. v Taylor (171 AD2d 869 [2d Dept 1991]), noted that the intent of the Part 130 Rules “is to prevent the waste of judicial resources and to deter vexatious litigation and dilatory or malicious litigation tactics (cf. Minister, Elders & Deacons of Refm. Prot. Church of City of New York v 198 Broadway, 76 NY2d 411; see Steiner v Bonhamer, 146 Misc 2d 10) [Emphasis added].”

Clearly, the pattern of conduct in the instant action by plaintiff HSBC is subject to sanctions. [*20]HSBC’s use of robsigners is “completely without merit in law or fact.” In my July 1, 2011 decision and order I documented the conflicted conduct of robosigners Scott Anderson, Margery Rotundo and Christina Carter and signature variations used by Scott Anderson and Christina Carter. Further, the attempt of “corporate” HSBC to intervene on July 15, 2011 without making a motion on notice is “without merit in law” and “a waste of judicial resources.”

While the Court cannot sanction HSBC’s President and CEO Irene Dorner, since she appeared by counsel, her conduct by failing to appear at the July 15, 2011 hearing without any reasonable explanation is without merit. As the leader of HSBC she could have shed some light on what happened in this action. She was missing in action, demonstrating her personal contempt for the Supreme Court of the State of New York. Mr. Cercone, her counsel, stated she was out of the country, but aware of the Court hearing. However, he stated “I have not communicated with Ms. Dorner.” Therefore, how did he know she was aware of the hearing or even out of country?

Moreover, HSBC’s Pontius Pilate/Sergeant Schultz defense is absurd. The case caption states that HSBC is the plaintiff, not OCWEN. If HSBC has its name on the caption, it can’t claim ignorance. HSBC as plaintiff is responsible for the actions of its agents, such as OCWEN. Mr. Ware’s claim that “neither HSBC not Dorner was in any practical position to control the prosecution of this action” is ludicrous. This does not absolve HSBC of its corporate sins. If HSBC is a ship, Ms. Dorner is the Captain and responsible for both the good and the bad. However, in the instant action, HSBC appears to be the RMS Titanic. Ms. Dorner, unlike Captain Edward Smith of the RMS Titanic, did not go down with the ship after it struck an iceberg.

Further, plaintiff HSBC and its counsel, Shapiro DiCaro & Barak, LLC, engaged in frivolous conduct by asserting false material representations, including claims that HSBC: owned the TAHER note; had standing to prosecute the instant action; and, had offices at 1661 Worthington Road, Suite 100, West Palm Beach, FL 33409 [OCWEN’s offices]. Further, in Mr. Cassara’s January 6, 2011 affirmation “under the penalties of perjury” he asserted that an OCWEN employee, robosigner Christiana Carter, was a representative of HSBC and that the best of Mr. Cassara’s “knowledge, information, and

belief, the Summons and Complaint, and other papers filed or submitted to the Court in this matter contain no false statements of fact or law.” “Nothing could more aptly be described as conduct completely without merit in fact’ than the giving of sworn testimony or providing an affidavit, knowing the same to be false, on a material issue.” (Sanders v Copley, 194 AD2d 85, 88 [1d Dept 1993]). Conduct of counsel is “frivolous because it was without merit in law and involved the assertion of misleading factual statements.” (Curcio v J.P. Hogan Coring & Sawing Corp., 303 AD2d 357, 358 [2d Dept 2003]).

In Navin v Mosquera (30 AD3d 883 [3d Dept 2006]), the Court instructed that when considering if specific conduct is sanctionable as frivolous, “courts are required to

examine whether or not the conduct was continued when its lack of legal or factual basis was apparent [or] should have been apparent’ (22 NYCRR 130-1.1 [c]).” In Sakow ex rel. Columbia Bagel, Inc. v Columbia Bagel, Inc. (6 Misc 3d 939, 943 [Sup Ct, New York County 2004]), the Court held that “[i]n assessing whether to award sanctions, the Court must consider whether the attorney adhered to the standards of a reasonable attorney (Principe v Assay Partners, 154 Misc [*21]2d 702 [Sup Ct, NY County 1992]).” In the instant action, a reasonable attorney would not have affirmed under penalties of perjury that Christina Cater was a representative of HSBC, but would explain that she was an employee of its servicer, OCWEN. Therefore, the course of conduct of Shapiro, DiCaro & Barak, LLC, and Frank Cassara, Esq., in the instant action, was not reasonable.

In this time of budgetary constraints, when our Courts have an increased caseload but less funding, the Court cannot countenance the continuation of actions which waste scarce judicial resources. Therefore, based upon the totality of frivolous conduct in this matter by plaintiff HSBC and its counsel, Shapiro, DiCaro & Barak, LLC, the Court finds it is appropriate to impose sanctions of $10,000.00 upon plaintiff HSBC and $5,000.00 upon Shapiro, DiCaro & Barak, LLC.

Accordingly, it is

ORDERED that, after conducting a hearing on July 15, 2011, to determine if plaintiff HSBC BANK USA, N.A., AS INDENTURE TRUSTEE FOR THE REGISTERED NOTEHOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2007-2, plaintiff’s counsel Frank M. Cassara, Esq. and his firm Shapiro, DiCaro & Barak, LLC engaged in “frivolous conduct,” as defined in the Rules of the Chief Administrator, 22 NYCRR § 130-1 (c) and that plaintiff HSBC BANK USA, N.A., AS INDENTURE TRUSTEE FOR THE REGISTERED NOTEHOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2007-2, plaintiff’s counsel Frank M. Cassara, Esq. and his firm Shapiro, DiCaro & Barak, LLC were granted “a reasonable opportunity to be heard,” pursuant to the Rules of the Chief Administrator, 22 NYCRR § 130-1.1 (d), the Court finds that plaintiff HSBC BANK USA, N.A., AS INDENTURE TRUSTEE FOR THE REGISTERED NOTEHOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2007-2 and the law firm of Shapiro, DiCaro & Barak, LLC engaged in “frivolous conduct,” as defined in 22 NYCRR § 130-1.1, in the instant matter; and it is further

ORDERED that plaintiff HSBC BANK USA, N.A., AS INDENTURE TRUSTEE FOR THE REGISTERED NOTEHOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2007-2, pursuant to the Rules of the Chief Administrator, 22 NYCRR

§ 130-1.3, shall pay a sanction of $10,000.00, to the Lawyer’s Fund for Client Protection, 119 Washington Avenue, Albany, NY 12210, within thirty (30) days after service of this decision and order; and it is further

ORDERED that the law firm of Shapiro, DiCaro & Barak, LLC, pursuant to the Rules of the Chief Administrator, 22 NYCRR § 130-1.3, shall pay a sanction of $5,000.00, to the Lawyer’s Fund for Client Protection, 119 Washington Avenue, Albany, NY 12210, within thirty (30) days after service of this decision and order; and it is further

ORDERED, that Ronald David Bratt, Esq., my Principal Law Clerk, is directed to serve this order by first-class mail, upon: Irene M. Dorner, President and Chief Executive Officer of plaintiff, HSBC BANK USA, N.A., AS INDENTURE TRUSTEE FOR THE REGISTERED NOTEHOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2007-2, 452 Fifth Avenue, New York, New York 10018; and, Shapiro DiCaro & Barak, LLC, 250 Mile Crossing Boulevard, Suite One, Rochester, New York 14624. [*22]

This constitutes the Decision and Order of the Court.

ENTER

___________________________

Hon. Arthur M. SchackJ. S. C

[ipaper docId=76394426 access_key=key-1tpxiizxns7vihs5nlvi height=600 width=600 /]

[ipaper docId=76349579 access_key=key-1gc7dwjst0siby2ccnk5 height=600 width=600 /]

HSBC Bank, USA, National Association, As Trustee for WFHET 2006-2, Plaintiff,

against

William F. Norton, a/k/a William Norton, Michelle L. Norton, Defendants.